Essays on the treatment of cash flows under stochastic interest rates

Abstract This paper shows how to calculate recursively the moments of the accumulated and discounted value of cash flows when the instantaneous rates of return follow a conditional ARMA process with normally distributed innovations. We investigate various moment based approaches to approximate the distribution of the accumulated value of cash flows and we assess their performance through stochastic Monte-Carlo simulations. We discuss the potential use in insurance and especially in the context of Asset-Liability Management of pension funds.