Abstract
The recent insolvency of Executive Life Insurance Company has motivated increased concern about the quality of insurance company assets and the risks associated with those assets. Junk bonds are an asset which was believed by some to provide a relatively high return with minimal risk. Since junk bonds played a significant role in the insolvency of Executive Life, the risks of owning junk bonds currently are of greater concern to regulators.
In this paper, some of the prior research on junk bonds is reviewed. Then statistical models are developed which can be used to predict junk bond default rates. Finally, procedures for incorporating the statistical models into a comprehensive simulation of insurance company performance are described.
Volume
May, Vol 2
Page
951-994
Year
1992
Categories
Financial and Statistical Methods
Asset and Econometric Modeling
Asset Classes
Corporate Bonds
Financial and Statistical Methods
Statistical Models and Methods
Regression
Financial and Statistical Methods
Simulation
Actuarial Applications and Methodologies
Valuation
Publications
Casualty Actuarial Society Discussion Paper Program
