Browse Research
Viewing 3126 to 3150 of 7690 results
2002
This paper investigates nonlinear pricing kernels in which the risk factor is endogenously determined and preferences restrict the definition of the pricing kernel. These kernels potentially generate the empirical performance of nonlinear and multifactor models, while maintaining empirical power and avoiding ad hoc specifications of factors or functional form.
2002
This article addresses the trade-off between moral hazard and basis risk. A decision maker, e.g., a primary insurer, is considered who can purchase an index hedge and a (re)insurance contract that covers the gap between actual losses and the index-linked payout, or part of this gap. The results suggest that combining insurance with an index hedge may extend the possibility set and by that means lead to efficiency gains.
2002
This article discusses the three approaches for setting capital charges for operational risk as proposed by the New Basel Accord. The article addresses a series of questions raised by the Basel proposal related to defining, measuring, and reserving for operational risk. The author suggests that capital reserves may actually serve as a deterrent to reducing operational losses.
2002
We investigate the role of information2013based trading in affecting asset returns. We show in a rational expectation example how private information affects equilibrium asset returns. Using a market microstructure model, we derive a measure of the probability of information2013based trading, and we estimate this measure using data for individual NYSE2013listed stocks for 1983 to 1998.
2002
We introduce the notion of a convex measure of risk, an extension of the concept of a coherent risk measure defined in Artzner et al. (1999), and we prove a corresponding extension of the representation theorem in terms of probability measures on the underlying space of scenarios. As a case study, we consider convex measures of risk defined in terms of a robust notion of bounded shortfall risk.
2002
This paper introduces a set of axioms that define convex risk measures. Duality theory provides the representation theorem for these measures and the link with pricing rules.
2002
This article discusses various approaches to pricing double-trigger reinsurance contracts-a new type of contract that has emerged in the area of "alternative risk transfer." The potential coverage from this type of contract depends on both underwriting and financial risk.
2002
Automobile and workers' compensation insurance are relatively homogeneous products sold under varying regulatory systems among the states. This paper investigates how price regulation affects the capital structure decisions of profit-maximizing insurers who sell insurance in both competitive and/or regulated markets. Specifically, we test the hypothesis that insurers subject to price regulation will choose to hold less capital.
2002
Recently, a new approach for optimization of Conditional Value-at-Risk (CVaR) was suggested and tested with several applications. For continuous distributions, CVaR is defined as the expected loss exceeding Value-at Risk (VaR). However, generally, CVaR is the weighted average of VaR and losses exceeding VaR. Central to the approach is an optimization technique for calculating VaR and optimizing CVaR simultaneously.
2002
The terrorist attacks on the World Trade Center and the Pentagon have created a heavy demand for insurance against such events. However, it is difficult to price insurance against extreme events because the probability of such events happening again is highly ambiguous, and the potential loss is highly uncertain.
2002
The tragic attacks of September 11 and the bioterrorist threats with respect to anthrax that followed have raised a set of issues regarding how we deal with events where there is considerable ambiguity and uncertainty about the likelihood of their occurrence and their potential consequences.
2002
This article develops a contingent claim model to price a default-risky, catastrophe-linked bond. This model incorporates stochastic interest rates and more generic loss processes and allows for practical considerations of moral hazard, basis risk, and default risk. The authors compute default-free and default-risky CAT bond prices by using the Monte Carlo method.
2002
A market is presented in which insurance related risk is traded through both insurance and financial contracts. The coexistence of these contracts leads to a new price selection criterion. Financial prices need to be actuarially consistent with insurance premiums in addition to the exclusion of arbitrage opportunities in the market.
2002
The potential losses from catastrophes have led financial researchers to address the following questions: (1) to what extent is catastrophe risk being shared (insured) and is the allocation of catastrophe risk consistent with notions of optimal risk sharing? (2) if not, what market imperfections hinder the efficient allocation of catastrophe risk?
2002
The New Basel Capital Accord presents a framework for measuring operational risk which includes four degrees of complexity. In this paper we focus on a mathematical description of the Loss Distribution Approach (LDA), being the more rigorous and potentially more accurate approach towards which most (advanced) institutions will be striving.
2002
This paper addresses the allocation of solvency capital in multi- line financial businesses. Although this paper is uniformly applicable to financial enterprises of all types, the terminology in the paper is mainly that of insurance. The TailVaR risk measure is extended in a natural way to allocating capital to each of the business units.
2002
Linear regression is traditionally based on the minimization of variance, or equivalently, standard deviation, but other approaches are possible in which standard deviation is replaced by something more general. A one-to-one correspondence is now known between risk measures, such as have been introduced for various applications in finance, and a large class of deviation measures characterized by simple axioms.
2002
Fundamental properties of conditional value-at-risk (CVaR), as a measure of risk with significant advantages over value-at-risk (VaR), are derived for loss distributions in finance that can involve discreetness. Such distributions are of particular importance in applications because of the prevalence of models based on scenarios and finite sampling. CVaR is able to quantify dangers beyond VaR and moreover it is coherent.
2002
This paper explores valuation of two measures of windstorm mitigation in a Gulf Coast city. Since the home owner is not able to reduce the probability that a hurricane or tropical storm will occur at the structure's location, any voluntary mitigation intended to fortify the home is a form of self-insurance as defined by.
2002
Financial institutions have to allocate so-called economic capital in order to guarantee solvency to their clients and counterparties. Mathematically speaking, any methodology of allocating capital is a risk measure, i.e. a function mapping random variables to the real numbers. Nowadays value-at-risk, which is defined as a fixed level quantile of the random variable under consideration, is the most popular risk measure.
2002
This paper presents a universal framework for pricing financial and insurance risks. Examples are given for pricing contingent payoffs, where the underlying asset or liability can be either traded or not traded. The paper also outlines an application of the framework to prescribe capital allocations within insurance companies, and to determine fair values of insurance liabilities.
2002
The focus of this paper is on some new developments in the methodologies for enterprise risk management (ERM). The paper presents a set of new methods and tools, including (i) a universal risk measure tbr both assets and liabilities, (ii) a coherent method of determining the aggregate capital requirement for a firm, and (iii) a coherent method of allocating the cost of capital to individual business units.
2002
This paper applies a risk-adjusted return on capital (RAROC) framework to the financial analysis of the risk and performance of an insurance company. A case study is presented for a diversified insurer with both property & casualty and life insurance business segments.
2002
Value-at-risk (VaR) has become a standard measure used in financial risk management due to its conceptual simplicity, computational facility, and ready applicability. However, many authors claim that VaR has several conceptual problems. Artzner et al. (1997, 1999), for example, have cited the following shortcomings of VaR.
