ST 2 Chapter 15 Page 11 The equity margin should be combined with increased risk of not achieving increased yield, the net result being the risk free rate of return. Page 12 Besides valuing bond cashflows where both would use risk free rates, would financial economic and traditional approaches result in same answer at other times? ST2 Chapter 16 Page 16 What is probability of absolute ruin? As opposed to the usual definition of ruin probability. Why is it only possible to calculate ruin probability where there is no new business?
1. read "be combined" as "cancel out" 2. Yes they could, given the traditional approach is fairly subjective with regard to assumptions. 3. Someone else might be able to confirm I think it means ruin at any possible future time. If new business didn't cease then i suppose you'd have to project to infinity.
