C
curiousactuary
Member
The core reading under chapter 22 says "Collateral is calculated regularly and paid between insurer and reinsurer to reflect the value of the swap at any given date, i.e. the present value of the floating leg less the present value of the fixed leg."
When is the collateral paid BY the insurer?
When is the collateral paid BY the reinsurer?
Would the collateral payment be 0?
I do not fully understand what a collateral is and how they operate under a longevity swap, so will appreciate if you can clarify the above and/or provide some examples.
- When it says "between insurer and reinsurer" does this mean sometimes it is paid by the insurer (to the reinsurer), and at other times it is paid by the reinsurer (to the insurer)?
When is the collateral paid BY the insurer?
- Is this when the the present value of floating payments exceed the present value of fixed payments?
- Is the collateral amount paid equal to the difference between the present value of floating payments less the present value of fixed payments?
When is the collateral paid BY the reinsurer?
- Is this when the the present value of fixed payments exceed the present value of floating payments?
- Is the collateral amount paid equal to the difference between the present value of fixed payments less the present value of floating payments?
Would the collateral payment be 0?
- Would the collateral payment be zero if the present value of floating payments equaled the present value of fixed payments?
I do not fully understand what a collateral is and how they operate under a longevity swap, so will appreciate if you can clarify the above and/or provide some examples.