Capital budgeting and the best investment strategy for a hypothetical Japanese annuity portfolio under the fair valuation regime
Stochastic Processes Seminar
Joint Seminar Series on Stochastic Processes and Financial Mathematics
by Manabu Sato
Abstract: From 2009, insurance contracts will be reported at fair values on insurersâ€™ balance
sheets. This change will impact significantly on all aspects of an insurance business. After describing the concept of the fair valuation, this thesis considers the risk-return profile of a hypothetical business that holds a particular type of insurance liability,
and finds the most appropriate asset allocation strategy under a fair value environment.
The business is assumed to be supported by initial and subsequent capital injections,
and the business is analysed from the viewpoint of the capital provider. The valuation is based on the techniques of financial economics.
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