Time-consistent insurance pricing. A proof of concept
This paper will give a proof of concept of a technique to price insurance contracts in a TimeConsistent way. In order to do this, the paper will first take a short look at how insurances are priced using the Cost of Capital method. Then we will look at the Industry standard for pricing contracts in contrast to a Time-Consistent pricing technique. Both methods will be discussed in detail, after which we will apply them to 2 theoretical insurance contracts, one of which is more realistic than the other. From these contracts results will be presented in order to compare both methods and to judge the relevance of introducing a new Time-Consistent method of pricing.
The aim of this proof of concept is to investigate the possible relevance of the Time-Consistent pricing technique. With this paper, I try to open up new roads for further research on the matter of Time-Consistent pricing in the hope that other researchers will continue on this path. In this introduction I would also like to thank Antoon Pelsser: without his ideas this paper would not have come into existence.