Insurance futures and options

Document description

The Working Party gained direct and valuable experience in the need to hedge positions. At least 3 meetings were adversely affected by circumstances beyond the working party's control. Snow ruined one meeting, the rail strike another and finally one meeting was adversely affected by one member suffering a broken arm and another being involved in a taxi accident. As a result of these mishaps the working party only considered the three separate issues; the current position, pricing problems and trading strategies. These can essentially be regarded as four separate topics and have not been drawn together as a whole cohesive document. The first item provides an update of the current position, the second reviews the current academic contributions to considering option of future pricing. Essentially this endeavours to translate, with considerable difficulty, financial options theory to insurance options. The third paper suggests a more conventional insurance approach and how credibility theory might be applied to solve the problem. This might be regarded as providing a pointer forward rather than being a vigorous academic treatise. Finally there is discussion of possible trading strategies. It is hoped that these papers will be read in conjunction with previous years paper and will provide an interesting discussion even if it does not contribute much to insurance academia.