Insurance master

Before getting into the actual mechanics of pricing and valuation, the astute reader might wonder whether we are being a bit redundant. Are pricing and valuation not the same thing? An equity analyst often finds that a stock is priced at more or less than its fair market value and uses this conclusion as the basis for a buy or sell recommendation. In an efficient market, the price of a stock would always equal its value or the price would quickly converge to the value. Thus, for all practical purposes, pricing and valuation would be the same thing. In general, when we speak of the value and price of an asset, we are referring to what that asset is worth and what it sells for. With respect to certain derivatives, however, value and price take on slightly different meanings.
So let us begin by defining value: Value is what you can sell something for or what you must pay to acquire something. This applies to stocks, bonds, derivatives, and used cars.’”
Accordingly, valuation is the process of determining the value of an asset or service. Pricing is a related but different concept; let us explore what we mean by pricing a forward contract. A forward contract price is the fixed price or rate at which the transaction scheduled to occur at expiration will take place. This price is agreed to on the contract initiation date and is commonly called the forward price or forward rate. Pricing means to determine the forward price or forward rate. Valuation, however, means to determine the amount of money that one would need to pay or would expect to receive to engage in the transaction. Alternatively, if one already held a position, valuation would mean to determine the amount of money one would either have to pay or expect to receive in order to get out of the position. Let us look at a generic example.