Inside the Solvency 2 Black Box: Net Asset Values and Solvency Capital Requirements with the least-squares Monte Carlo method

The calculation of Net Asset Values and Solvency Capital Requirements in a Solvency 2 context – and the derivation of sensitivity analyses with respect to the main financial and actuarial risk drivers – is a complex procedure at the level of a real company, where it is illusory to be able to rely on closed-form formulas. The most general approach to perform- ing these computations is that of nested simulations. However, this method is also hardly realistic because of its huge computation resources demand. The least-squares Monte Carlo method has recently been suggested as a way to overcome these difficulties. The present paper confirms that using this method is indeed relevant for Solvency 2 computations at the level of a company.