2018 June - 39 articles
The Solvency II directive asks insurance companies to derive their solvency capital requirement from the full loss distribution over the coming year. While this is in general computationally infeasible in the life insurance business, an application o...
This article reviews two leading measures of financial risk and an emerging alternative. Embraced by the Basel accords, value-at-risk and expected shortfall are the leading measures of financial risk. Expectiles offset the weaknesses of value-at-risk...
In this paper we analyze insurance demand when the utility function depends both upon final wealth and the level of losses or gains relative to a reference point. Besides some comparative statics results, we discuss the links with first-order risk av...
This paper studies the moments and the distribution of the aggregate discounted claims (ADCs) in a Markovian environment, where the claim arrivals, claim amounts, and forces of interest (for discounting) are influenced by an underlying Markov process...
We review two complementary mixture-based clustering approaches for modeling unobserved heterogeneity in an insurance portfolio: the generalized linear mixed cluster-weighted model (CWM) and mixture-based clustering for an ordered stereotype model (O...
This paper considers risks of the investment portfolio, which consist of distributed mortgages and sold European call options. It is assumed that the stream of the credit payments could fall by a jump. The time of the jump is modeled by the exponenti...
Credit risk is a critical issue that affects banks and companies on a global scale. Possessing the ability to accurately predict the level of credit risk has the potential to help the lender and borrower. This is achieved by alleviating the number of...
We model the logarithm of the spot price of electricity with a normal inverse Gaussian (NIG) process and the wind speed and wind power production with two Ornstein–Uhlenbeck processes. In order to reproduce the correlation between the spot pric...
In this paper, we study the implications of diversification in the asset portfolios of banks for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in a network model of the interbank market. We carry out...
Utility and risk are two often competing measurements on the investment success. We show that efficient trade-off between these two measurements for investment portfolios happens, in general, on a convex curve in the two-dimensional space of utility...
The direction of price movements are analysed under an ordered probit framework, recognising the importance of accounting for discreteness in price changes. By extending the work of Hausman et al. (1972) and Yang and Parwada (2012),This paper focuses...
We extend an existing numerical model (Grasselli (2011)) for valuing a real option to invest in a capital project in an incomplete market with a finite time horizon. In doing so, we include two separate effects: the possibility that the project value...
Solvency II Standard Formula provides a methodology to recognise the risk-mitigating impact of excess of loss reinsurance treaties in premium risk modelling. We analyse the proposals of both Quantitative Impact Study 5 and Commission Delegated Regula...
There are extensive studies on the allocation problems in the field of insurance and finance. We observe that these studies, although involving different methodologies, share some inherent commonalities. In this paper, we develop a new framework for...
We study the gap between the state pension provided by the Italian pension system pre-Dini reform and post-Dini reform. The goal is to fill the gap between the old and the new pension by joining a defined contribution pension scheme and adopting an o...
According to the last proposals of the Basel Committee on Banking Supervision, banks or insurance companies under the advanced measurement approach (AMA) must use four different sources of information to assess their operational risk capital requirem...
One of the key components of financial risk management is risk measurement. This typically requires modeling, estimating and forecasting tail-related quantities of the asset returns’ conditional distribution. Recent advances in the financial ec...
It is impossible to discriminate between the commonly used stochastic volatility models of Heston, log-normal, and 3-over-2 on the basis of exponentially weighted averages of daily returns—even though it appears so at first sight. However, with...
Advanced machine learning has achieved extraordinary success in recent years. “Active” operational risk beyond ex post analysis of measured-data machine learning could provide help beyond the regime of traditional statistical analysis whe...
We review recent progress in modeling credit risk for correlated assets. We employ a new interpretation of the Wishart model for random correlation matrices to model non-stationary effects. We then use the Merton model in which default events and los...
In this paper, we analyse and construct a lifetime utility maximisation model with hyperbolic discounting. Within the model, a number of assumptions are made: complete markets, actuarially fair life insurance/annuity is available, and investors have...
During the last decades, life expectancy has risen significantly in the most developed countries all over the world. Greece is a case in point; consequently, higher governmental financial responsibilities occur as well as serious concerns are raised...
The topic of bank default risk in connection with government bailouts has recently attracted a great deal of attention. In this paper, the question of how a bank’s default risk is affected by a distress acquisition is investigated. Specifically...
An intersection–union test for supporting the hypothesis that a given investment strategy is optimal among a set of alternatives is presented. It compares the Sharpe ratio of the benchmark with that of each other strategy. The intersection&ndas...
Due to the advanced technology associated with Big Data, data availability and computing power, most banks or lending institutions are renewing their business models. Credit risk predictions, monitoring, model reliability and effective loan processin...
The estimation of future sea level rise (SLR) is a major concern for cities near coastlines and river systems. Despite this, current modelling underestimates the future risks of SLR to property. Direct risks posed to property include inundation, loss...
This work addresses crucial questions about the robustness of the PSDization process for applications in insurance. PSDization refers to the process that forces a matrix to become positive semidefinite. For companies using copulas to aggregate risks...
Modeling the interactions between a reinsurer and several insurers, or between a central management branch (CB) and several subsidiary business branches, or between a coalition and its members, are fascinating problems, which suggest many interesting...
In the classical bonus-malus system the premium assigned to each policyholder is based only on the number of claims made without having into account the claims size. Thus, a policyholder who has declared a claim that results in a relatively small los...
Given a spectrally-negative Lévy process and independent Poisson observation times, we consider a periodic barrier strategy that pushes the process down to a certain level whenever the observed value is above it. We also consider the versions with ad...
Despite real changes in the work place and the negative consequences of prevailing hierarchical structures with rigid management systems, little attention has yet been paid to shifting management modes to accommodate the dynamics of the external envi...
In this paper we consider the problem of an insurance company where the wealth of the insurer is described by a Cramér-Lundberg process. The insurer is allowed to invest in a risky asset with stochastic volatility subject to the influence of an econo...
Under state-dependent preferences, probabilities and units of scale of state-dependent utilities are not separately identified. In standard models, only their products matter to decisions. Separate identification has been studied under implicit actio...
The aim of this project is to develop a stochastic simulation machine that generates individual claims histories of non-life insurance claims. This simulation machine is based on neural networks to incorporate individual claims feature information. W...
The precise large deviations asymptotics for the sums of independent identical random variables when the distribution of the summand belongs to the class
This paper introduces a new computational tool for the analysis of the risks embedded in a set of prices of European-style options. The software enables the estimation of the risk-neutral density (RND) from the observed option prices by means of orth...
In this paper, we propose an Adaptive Hyperbolic EGARCH (A-HYEGARCH) model to estimate the long memory of high frequency time series with potential structural breaks. Based on the original HYGARCH model, we use the logarithm transformation to ensure...
Despite the widespread use of chain-ladder models, so far no theory was available to test for model specification. The popular over-dispersed Poisson model assumes that the over-dispersion is common across the data. A further assumption is that accid...
This paper investigates the optimal investment strategy for a defined contribution (DC) pension plan during the decumulation phase which is risk-averse and pays close attention to inflation risk. The plan aims to maximize the expected constant relati...
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