Computing Semiparametric Bounds on the Expected Payments of Insurance Instruments via Column Generation

By Robert Howley, Robert H Storer, Juan C Vera, Luis F. Zuluaga

Download PDF of Full Text


It has been recently shown that numerical semiparametric bounds on the expected payoff of financial or actuarial instruments can be computed using semidefinite programming. However, this approach has practical limitations. Here we use column generation, a classical optimization technique, to address these limitations. From column generation, it follows that practical univariate semiparametric bounds can be found by solving a series of linear programs. In addition to moment information, the column generation approach allows the inclusion of extra information about the random variable, for instance, unimodality and continuity, as well as the construction of corresponding worst/best-case distributions in a simple way.

Keywords: Distributionally robust optimization, moment problem, option pricing, insurance instruments


Howley, Robert, Robert H Storer, Juan C Vera, and Luis F. Zuluaga, "Computing Semiparametric Bounds on the Expected Payments of Insurance Instruments via Column Generation," Variance 10:1, 2016, pp. 34-50.

Taxonomy Classifications

Subscribe to the RSS Feed

Email List

Sign up today for the Variance e-mail list and receive updates about new issues, articles, and special features.

Mission Statement

Variance (ISSN 1940-6452) is a peer-reviewed journal published by the Casualty Actuarial Society to disseminate work of interest to casualty actuaries worldwide. The focus of Variance is original practical and theoretical research in casualty actuarial science. Significant survey or similar articles are also considered for publication. Membership in the Casualty Actuarial Society is not a prerequisite for submitting papers to the journal and submissions by non-CAS members is encouraged.