State of the art tutorial I: simulation modeling for finance and insurance: applications of simulation models in finance and insurance

ABSTRACT

We describe a number of applications of simulation methods to practical problems in finance and insurance. The first entails the simulation of a two-stage model of a property-casualty insurance operation. The second application simulates the operation of an insurance regime for home equity conversion mortgages (also known as reverse mortgages). The third is an application of simulation in the context of <i>Value at Risk</i>, a widely-used measure for assessing the performance of portfolios of assets and/or liabilities. We conclude with an application of simulation in the testing of the <i>efficient market hypothesis</i> of the U.S. stock market.

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