anonymous referees, Niels Haldrup, Montserrat Guillén and from participants at the International Symposium

MCMC based estimation of

This paper takes a contingent claim approach to the market valuation of equity and liabilities in life insurance companies. A model is presented which explicitly takes into account the facts that the holders of life insurance contracts (LICs) have the first claim on the company’s assets whereas equityholders have limited liability, that interest rate guarantees are common elements of LICs, and that LICs according to the so-called contribution principle are entitled to receive a fair share of any investment surplus. Furthermore, a regulatory mechanism in the form of an intervention rule is built into the model. This mechanism is shown to significantly reduce the

It is a well known fact that local scale invariance plays a fundamental role in the theory of derivative pricing. Specific applications of this principle have been used quite often under the name of ‘change of numeraire’, but in recent work it was shown that when invoked as a fundamental first principle, it provides a powerful alternative method for the derivation of prices and hedges of derivative securities, when prices of the underlying tradables are driven by Wiener processes. In this article we extend this work to the pricing problem in markets driven not only by Wiener processes but also by Poisson processes, i.e. jump-diffusion models. It is shown that in this case too, the focus on symmetry aspects of the problem leads to important simplifications of, and a deeper insight into the problem. Among the applications of the theory we consider the pricing of stock options in the presence of jumps, and Lévy-processes. Next we show how the same theory, by restricting the number of jumps, can be used to model credit risk, leading to

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In the insurance market, the insurers who provide catastrophe insurance face with the risk of rare, but huge catastrophe claims. The introduction of catastrophe related se-curities into the marketplace provide the insurers the instruments to hedge some of the catastrophe risks they are facing. A catastrophe related security is tied to the pre-

Parametric inference for diffusion processes observed at discrete points in time: a survey