A Dynamic Method for the Valuation of Fair Value Insurance Liabilities

This paper presents a dynamic method to estimate fair value insurance liabilities for the whole book (with separate but correlated lines) of business. The model studies the aggregate liability without assuming independence of individual losses. A non-traditional aI)proach is proposed which estimates the fair wdue liability based on a st,)ehas/ic model of individual losses. Using the contingent claim analysis, the fair value liability are approximated by solving a partial differential equ~ttion. Paralneters estimation, correlations lneasurement and ap-plic~ttions of tile model are also discussed in the study C,,mt~alisons of the proposed method to tile existing methods arc given fi)r application purpose.