Applications of Monte Carlo Methods to Finance and Insurance

by Thomas N. Herzog, Graham Lord

Monte Carlo methods are useful in solving a wide range of problems, both stochastic and deterministic, that cannot easily be solved using analytic methods. In this text, the authors describe a number of schemes for generating sequences of both pseudo-random and quasi-random numbers from a wide variety of probability distributions. They discuss several variance reduction methods aimed at improving the efficiency and the robustness of the simulation process. The text illustrates the practical application of such methods to real-life problems in finance and insurance by presenting several in-depth case studies, including a model for generating stochastic interest rates. It also addresses issues relating to the important concept of Value at Risk, a measure for assessing the risk and/or performance of assets and/or liabilities. It is thus an excellent source for continuing education involving solutions to new and unique actuarial problems. The authors take you through several examples that

264 pages, Paperback

First published June 1, 2002