What is actuarial approach in Central Limit Theorem

Question

What is actuarial approach in Central Limit Theorem?

Answer 1

The actuarial manner is to look at pricing in several average senses. Even though you can’t hedge the risk from each option this doesn’t necessarily issue in the long run. Since in that long run you will have made many hundreds or thousands of option trades, therefore all that really issues is what the average price of each contract must be, even though it is dangerous. To some extent it relies on results by the Central Limit Theorem. It is termed as the actuarial approach as it is how the insurance business works. You cannot hedge the lifespan of individual policyholders although you can figure out what will occur to hundreds of thousands of them on average by using actuarial tables.