The replicating portfolio approach is a well-established approach carried out by many life insurance companies within their Solvency II framework for the computation of risk capital. In this note, we elaborate on one specific formulation of a replicating portfolio problem. In contrast to the two...

The problem of the valuation of life insurance payments with policyholder behavior is studied. First, a simple survival model is considered, and it is shown how cash flows without policyholder behavior can be modified to include surrender and free policy behavior by calculation of simple...

In investment and insurance contracts, certain stipulated payments may depend on the hedging strategy. We study the problem of calculation, hedging and valuation of such cash flows, by considering a payment process in a setup with taxes and investment costs that are functions of the investment...

We analyze equilibrium leverage dynamics in a dynamic tradeoff model when the firm is unable to commit to a leverage policy ex ante. We develop a methodology to characterize equilibrium equity and debt prices in a general jump-diffusion framework, and apply our approach to the standard Leland...