FIE462 Finance Innovations in Insurance
The course is based on cases from the insurance industry. Each case will typically be introduced by a representative from an insurance company/industry, before it is covered in class. All cases represent situations where knowledge from finance is required, in addition to insurance. Historically, finance and insurance theory have developed independently although they have dealt with similar kind of problems. One example is the classical theory of reinsurance which inspired Jan Mossin's derivation of the famous capital asset pricing model. Another example is Thiele's differential equation in life insurance which can be seen as a predecessor of the famous Black Scholes equation from financial option pricing.
Examples of cases:
- A capital asset pricing model of insurance
- Insurance as contingent claims
- Why do companies buy insurance?
- Interest rate guarantees
- Directors’ and officers’ liability insurance
- Reverse mortgages
All cases represent recent challenges for the insurance industry and requires knowledge about finance as well as insurance to deal with. Furthermore, the course covers newly developed insurance products, which can be analysed by current financial methods and insights.
After successfully completing the course, the candidate
- Is able to discuss and have an in-depth understanding of current challenges the insurance industry.
- Has knowledge of financial theory.
- Can apply financial theory and modelling techniques to problems particular to the insurance industry
- Can communicate and discuss challenges faced by the insurance industry with a professional audience.
Lectures (due to the current virus situation, lectures will be live streamed)
Individual take home exam.
The course is intended for students with interest in insurance.
In this respect this course may supplement fhe courses ECO 440 Economics of Uncertainty: Insurance and FIE 461 Risk and insurance, which both have different perspectives.
Requirements for course approval
One group assignment.
Individual 4 hour take home exam (written in English).
Familiarity with spreadsheets (Excel).
Some examples may be illustrated with the use of routines from a programming language such as R.
Briys, de Varenne, 2001, Insurance: From Underwriting to Derivatives: Asset LiabilityManagement in Insurance Companies, John Wiley.
Eechoudt, Gollier, Schlesinger, 2005, Economic and Financial Decisions under Risk, Princeton University Press.
Lin, Officer, Zou. 2011, Directors’ and officers’ liability insurance and acquisition outcomes.Journal of Financial Economics 102:507-525.
Miltersen, Persson, 1999, Pricing rate of return guarantees in a Heath-Jarrow-Mortonframework, Insurance: Mathematics and Economics.
Nordahl, 2015, Hvorfor kjøper bedrifter forsikring?, Magma.
(revised reading list will be available when the course starts)
- ECTS Credits
- Teaching language
Spring. Offered spring 2021.
Professor Svein-Arne Persson, Department of Finance, NHH.