He returned to London in 1989 as a Senior Technical Manager at Clark Whitehill, where he was responsible for monitoring developments in accounting, auditing and company law. He was also joint author of an Investment Business Compliance Manual for Chartered Accountants. Dr Andrew Cairns is a Senior Lecturer in Actuarial Mathematics at Heriot-Watt University, Edinburgh. In particular, what can we learn from recent developments in actuarial and financial mathematicsthat will help us to address this problem. Two approaches suggest themselves.
Different investors can also have different probability forecasts of future investment returns.
Solution of this problem is often very complex. Most insurance-linked liabilities are not fully hedgeable, resulting in a range of prices relating to different objective functions, but all consistent with no arbitrage. For each price we can establish a market risk premium for the non-hedgeable risks. RM is generally more likely than ET to yield solutions. However, it ignores certain aspects of the market as a whole and the varied characteristics of investors.