SERV whitpaper on pricing modifications
SERV proposes a mathematical framework for the pricing of modifications of export finance insurances.
Given the idiosyncratic risks of financing and insuring a unique export business ECAs are challenged on pricing such transactions. With the OECD Arrangement, a standardized regulatory framework is commonly acknowledged of pricing export finance insurance in a situation of issuing polices in advance of a liability period. However, a general framework is missing for pricing modifications during the life time of such transactions. SERV presents a whitepaper to address this issue in a mathematical consistent framework. A so called specific risk premium is introduced as a central concept and it is demonstrated that such a specific risk premium standardizes the idiosyncratic risks of a unique export business. Illustrations of the framework’s practical use are presented by typical examples.
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