Fair value and demographic aspects of the insured loans.

The paper deals with the liability valuation of the insured loan in compliance of the fair value requirements for the financial assets and liabilities, as mapped out by the international boards engaged on this tool. Initially we propose a closed form for the fair valuation of the mathematical provision in a framework in which the randomness in the mortality is considered together with the financial risk component. Furthermore, aim of the paper is to analyse the relevance of the risk arising from the demographic movements on the insured loan reserve. Practical implications of assuming different mortality scenarios on the reserve fair value are presented, a graphic description of the model risk deriving from the choice of the demographic model is provided and numerical evidences of the accidental mortality risk are shown