Browse Research
Viewing 2126 to 2150 of 7690 results
2007
Fair pricing of embedded options in life insurance contracts is usually conducted by using risk-neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this article, we extend the risk-neutral valuation concept with a risk measurement approach.
2007
In recent years, industry loss warranties (ILWs) have become increasingly popular in the reinsurance market. The defining feature of ILW contracts is their dependence on an in- dustry loss index. The use of an index reduces moral hazard and generally results in lower prices compared to traditional, purely indemnity-based reinsurance contracts.
2007
We examine statistical properties of operational losses obtained from a large European bank using an actuarial-type framework. The simplistic assumption of a Poisson frequency distribution fails and we show that the frequency process follows closely a non-homogeneous Poisson process with a deterministic intensity of a form of a continuous cdf-like function. Further, operational losses are modelled using variety of distributions.
2007
This article provides a philosophical discussion detailing the limitations of univariate analysis in the pre-testing step of data analysis. The case in point is the relationship between the property-liability aggregate underwriting margin and interest rates. Haley (1993) and Choi, Hardigree, and Thistle (2002) both found strong evidence indicating such a relationship exists.
2007
In an interdependent world the risks faced by any one agent depend not only on its choices but also on those of all others. Expectations about others' choices will influence investments in risk management and the outcome can be suboptimal for everyone. We model this as the Nash equilibrium of a game and give conditions for such a suboptimal equilibrium to be tipped to an optimal one.
2007
Climate change will increase risks significantly in many areas of society, and also will make many risks more uncertain and harder to measure. If our society is to survive climate change without significant human costs, we must develop robust institutions and practices to manage these risks. The insurance industry is our society’s primary financial risk manager and needs to play a leading role in developing these institutions and practices.
2007
Choosing a proper risk measure is of great regulatory importance, as exemplified in Basel Accord that uses Value-at-Risk (VaR) in combination with scenario analysis as a preferred risk measure. The main motivation of this paper is to investigate whether VaR, in combination with scenario analysis, is a good risk measure for external regulation.
2007
Capital and cost of capital form a bridge between the insurance firm and the financial markets. The term capital is used in various ways. In current parlance, economic capital is frequently used to mean capital calculated using a risk-based measure which is independent of the regulatory requirements.
2007
Embedded value has been widely adopted by European and Canadian life insurance companies for supplementary performance reporting and increasingly by US insurers for management purposes. It has important implications for the international debate over the appropriate use of fair values in financial reporting. But EV has still not been accepted by standard setters (e.g. IASB) for inclusion in the main financial statements.
2007
We give a direct proof of the fundamental minimization theorem for CVaR presented by Rockafellar and Uryasev in their definitive paper (Conditional value-at-risk for general loss distributions. Journal of Banking and Finance, 26, 1443-1471, 2002).
2007
Insurance offers three important benefits that help an economy deal with the catastrophic losses that arise from both natural disasters and man-made events: risk sharing, mitigation, and price discovery. This paper develops the role insurance can play in dealing with the losses that could be created by terrorists attacks using weapons of mass destruction (WMD).
2007
Recent results in value at risk analysis show that, for extremely heavy-tailed risks with unbounded distribution support, diversification may increase value at risk, and that generally it is difficult to construct an appropriate risk measure for such distributions. We further analyze the limitations of diversification for heavy-tailed risks. We provide additional insight in two ways.
2007
A note on the relationship between Fama-French risk factors and innovations of ICAPM state variables
This note examines, over various time scales, the extent to which SMB (the difference between the average returns of the small-stock portfolios and big-stock portfolios) and HML (the difference in returns between the high-BM portfolios and low-BM portfolios) factors share information with the innovations of state variables, which are interpreted as alternative investment opportunities.
2007
This study investigates the applicability of the CAPM in explaining the cross section of stock return on the Karachi Stock Exchange for the period September 1992 to April 2006. Unlike earlier studies on emerging markets this study is carried out with a broader scope. Firstly, the tests are conducted on individual stocks as well as size sorted portfolios and industry portfolios.
2007
For insurance risks, jump processes such as homogeneous/non-homogeneous compound Poisson processes and compound Cox processes have been used to model aggregate losses. If we consider the economic assumption of a positive interest to aggregate losses, Lévy processes have proven to be useful.
2007
The Capital Asset Pricing Model arises in an economy where agents have exponential utility functions and aggregate consumption is normally distributed, and gives the prices of assets with payoffs which are jointly normal with consumption. Such assets have normal marginal distributions and have dependence with consumption characterised by a normal copula.
2007
Risk measures are of considerable current interest. Among other uses, they allow an insurer to calculate a risk-loaded premium for a random loss. However, the premium principle in use by the insurer may be, at least in part, based on considerations other than risk. It is then important to quantify the degree to which the premium compensates the insurer for the risk associated with the loss.
2007
The aim of this paper is to analyse the impact of heterogeneous beliefs in an otherwise standard competitive complete market economy. The construction of a consensus probability belief, as well as a consensus consumer, is shown to be valid modulo an aggregation bias, which takes the form of a discount factor.
2007
The (subjective) indifference value of a payoff in an incomplete financial market is that monetary amount which leaves an agent indifferent between buying or not buying the payoff when she always optimally exploits her trading opportunities. We study these values over time when they are defined with respect to a dynamic monetary concave utility functional, that is, minus a dynamic convex risk measure.
2007
We study the sensitivity to estimation error of portfolios optimized under various risk measures, including variance, absolute deviation, expected shortfall and maximal loss. We introduce a measure of portfolio sensitivity and test the various risk measures by considering simulated portfolios of varying sizes N and for different lengths T of the time series.
2007
The paper considers modelling of risk-averse preferences in stochastic programming problems using risk measures. We utilize the axiomatic foundation of coherent risk measures and deviation measures in order to develop simple representations that express risk measures via specially constructed stochastic programming problems.
2007
This paper examines the role that insurance and mitigation can play in reducing losses from natural disasters using data collected as part of a large-scale study on catastrophic risk jointly undertaken by the Wharton Risk Management Center in conjunction with Georgia State University and the Insurance Information Institute.
2007
In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the Capital Asset Pricing Model and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that the quality of accounting information can influence the cost of capital, both directly and indirectly.
