An Actuarial Approach to Reload Option Valuation for a Non-tradable Risk Assets under Jump-diffusion Process and Stochastic Interest Rate

We use an actuarial approach to estimate the valuation of the reload option for a non-tradable risk asset under the jump-diffusion processes and Hull-White interest rate. We verify the validity of the actuarial approach to the European vanilla option for non-tradable assets. The formulas of the actuarial approach to the reload option are derived from the fair premium principle and the obtained results are arbitrage. Numerical experiments are conducted to analyze the effects of different parameters on the results of valuation as well as their differences from those obtained by the no-arbitrage approach. Finally, we give the valuations of the reload options under different parameters.     

Bounds and approximations for sums of dependent log-elliptical random variables

Dhaene, Denuit, Goovaerts, Kaas and Vyncke [Dhaene, J., Denuit, M., Goovaerts, M.J., Kaas, R., Vyncke, D., 2002a. The concept of comonotonicity in actuarial science and finance: theory. Insurance Math. Econom. 31 (1), 3-33; Dhaene, J., Denuit, M., Goovaerts, M.J., Kaas, R., Vyncke, D., 2002b. The concept of comonotonicity in actuarial science and finance: Applications. Insurance Math. Econom. 31 (2), 133-161] have studied convex bounds for a sum of dependent random variables and applied these to sums of log-normal random variables. In particular, they have shown how these convex bounds can be used to derive closed-form approximations for several of the risk measures of such a sum. In this paper we investigate to which extent their general results on convex bounds can also be applied to sums of log-elliptical random variables which incorporate sums of log-normals as a special case. Firstly, we show that unlike the log-normal case, for general sums of log-ellipticals the convex lower bound does no longer result in closed-form approximations for the different risk measures. Secondly, we demonstrate how instead the weaker stop-loss order can be used to derive such closed-form approximations. We also present numerical examples to show the accuracy of the proposed approximations.     

Real Valuations and Orderings on a Module

The purpose of this article is to introduce the notion of real valuations on modules over commutative rings. These real valuations are characterized by their associated valuation triples, and a necessary and sufficient condition for a module to possess a real valuation is established. Moreover, the close interplay between valuations and orderings on a module is investigated by introducing the compatibility of valuations with orderings. Via the compatibility of valuations with orderings, the reality of valuations on a module also is characterized.     

Perron Transforms

We generalize Zariski's Perron transforms to obtain a proof of local uniformization of an arbitrary singular variety of characteristic zero along a valuation of arbitrary rank. Furthermore, we resolve the centers of all the composite valuations as well as the prime ideals of infinite value.     

Assessing the cost of capital for longevity risk

The cost of capital is a key element of the embedded value methodology for the valuation of a life business. Further, under some solvency approaches (in particular, the Swiss Solvency Test and the developing Solvency 2 project) assessing the cost of capital constitutes a step in determining the required capital allocation.Whilst the cost of capital is usually meant as a reward for the risks encumbering a given life portfolio, in actuarial practice the relevant parameter has been traditionally chosen, at least to some extent, inconsistently with such risks. The adoption of market-consistent valuations has then been advocated to reach a common standard.A market-consistent value usually acknowledges a reward to shareholders’ capital as long as the market does, namely if the risk is systematic or undiversifiable. When dealing with a life annuity portfolio (or a pension plan), an important example of systematic risk is provided by the longevity risk, i.e. the risk of systematic deviations from the forecasted mortality trend. Hence, a market-consistent approach should provide appropriate valuation tools.In this paper we refer to a portfolio of immediate life annuities and we focus on longevity risk. Our purpose is to design a framework for a valuation of the portfolio which is market-consistent, and therefore based on a risk-neutral argument, while involving some of the basic items of a traditional valuation, viz best estimate future flows and allocated capital. This way, we try to reconcile the traditional with a market-consistent (or risk-neutral) approach. This allows us, in particular, to translate the results obtained under the risk-neutral approach in terms of a properly redefined embedded value.     

Insurance valuation: A computable multi-period cost-of-capital approach

We present an approach to market-consistent multi-period valuation of insurance liability cash flows based on a two-stage valuation procedure. First, a portfolio of traded financial instrument aimed at replicating the liability cash flow is fixed. Then the residual cash flow is managed by repeated one-period replication using only cash funds. The latter part takes capital requirements and costs into account, as well as limited liability and risk averseness of capital providers. The cost-of-capital margin is the value of the residual cash flow. We set up a general framework for the cost-of-capital margin and relate it to dynamic risk measurement. Moreover, we present explicit formulas and properties of the cost-of-capital margin under further assumptions on the model for the liability cash flow and on the conditional risk measures and utility functions. Finally, we highlight computational aspects of the cost-of-capital margin, and related quantities, in terms of an example from life insurance.     

A neural network approach to efficient valuation of large portfolios of variable annuities

Managing and hedging the risks associated with Variable Annuity (VA) products require intraday valuation of key risk metrics for these products. The complex structure of VA products and computational complexity of their accurate evaluation have compelled insurance companies to adopt Monte Carlo (MC) simulations to value their large portfolios of VA products. Because the MC simulations are computationally demanding, especially for intraday valuations, insurance companies need more efficient valuation techniques. Recently, a framework based on traditional spatial interpolation techniques has been proposed that can significantly decrease the computational complexity of MC simulation (Gan and Lin, 2015). However, traditional interpolation techniques require the definition of a distance function that can significantly impact their accuracy. Moreover, none of the traditional spatial interpolation techniques provide all of the key properties of accuracy, efficiency, and granularity (Hejazi et al., 2015). In this paper, we present a neural network approach for the spatial interpolation framework that affords an efficient way to find an effective distance function. The proposed approach is accurate, efficient, and provides an accurate granular view of the input portfolio. Our numerical experiments illustrate the superiority of the performance of the proposed neural network approach compared to the traditional spatial interpolation schemes.     

A note on a simplified approach to the valuation of risky streams

This paper develops an approach to the valuation of risky streams defined by a class of stochastic processes. The valuation is given by a linear functional, which is an extension of the market valuations of the marketed assets. Provided that there exists an interest rate process, it is possible to represent the valuation functional as an appropriate expectation defined on the space of integrable random variables. The paper concludes with the relationship of our approach to the existing literature.     

Time Charters with Purchase Options in Shipping: Valuation and Risk Management

Abstract

The article studies the valuation and optimal management of Time Charters with Purchase Options (T/C–POPs), which is a specific type of asset lease with embedded options that is common in shipping markets. T/C–POPs are economically significant and sometimes account for more than half of the stock market value of listed shipping companies.

The main source of risk in markets for maritime transportation is the freight rate, and we therefore specify a single-factor continuous time model for the dynamic evolution of freight rates that allows us to price a wide variety of freight rate-related derivatives including various forms of T/C–POPs using contingent claims valuation techniques. Our model allows for the derivation of closed valuation formulas for some simple freight rate derivatives, whereas the more complex ones are analysed using numerical (finite difference) procedures. We accompany our theoretical results with illustrative numerical examples as we proceed.     

免赔额保险公平定价的期权博弈分析

传统保险定价实质上是供给方定价,忽视了保险契约是保险人和投保人双方互动决策的结果.另一方面,保单具有或有权益的性质,这使得近年来金融定价方法得以引入到保险定价中,以反映风险和回报之间的长期均衡关系.借助期权博弈框架引入博弈论和期权定价理论,分析了免赔额保险的公平定价问题,给出了基本模型和扩展模型两种情形下博弈均衡结果,即保单的无套利价值,并发现在扩展模型情形下,投保人的最优投保策略和均衡保险合同均发生变化.     

Valuations and hyperplanes of dual polar spaces

Valuations were introduced in De Bruyn and Vandecasteele (Valuations of near polygons,preprint, 2004) as a very important tool for classifying near polygons. In the present paper we study valuations of dual polar spaces. We will introduce the class of the SDPS-valuations and characterize these valuations. We will show that a valuation of a finite thick dual polar space is the extension of an SDPS-valuation if and only if no induced hex valuation is ovoidal or semi-classical. Each SDPS-valuation will also give rise to a geometric hyperplane of the dual polar space.     

Valuation Extensions of Filtered and Graded Algebras

In this note we relate the valuations of the algebras appearing in the noncommutative geometry of quantized algebras to properties of sublattices in some vector spaces. We consider the case of algebras with PBW-bases and prove that under some mild assumptions, the valuations of the ground field extend to a noncommutative valuation. Later we introduce the notion of F-reductor and graded reductor and reduce the problem of finding an extending noncommutative valuation to finding a reductor in an associated graded ring having a domain for its reduction.     

Catastrophe risk management with counterparty risk using alternative instruments

Since weather-related disasters have an upward trend-cycle movement and the global financial crisis has revealed the severity of counterparty risk, this study reinvestigates and incorporates the catastrophe characteristics and counterparty risk into the valuation of catastrophe products. First, the excess of loss reinsurance is traditionally used to reduce catastrophe risk. Its premium is estimated under these catastrophe characteristics. Second, this paper looks into the price of catastrophe futures and spread option contracts that are based on a catastrophe index. The (re)insurer can apply these exchange-traded derivatives to reduce catastrophe risk without counterparty risk. Third, this paper takes counterparty risk into account to value catastrophe bonds and catastrophe equity puts. Thus, the fair valuations of these two instruments are revealed to the buyer.     

Valuations with preassigned proximity relations

We characterize the infinite upper triangular matrices (which we call formal proximity matrices) that can arise as proximity matrices associated with zero-dimensional valuations dominating regular noetherian local rings. In particular, for every regular noetherian local ring R of the appropriate dimension, we give a sufficient condition for such a formal proximity matrix to be the proximity matrix associated with a real rank one valuation dominating R. Furthermore, we prove that in the special case of rational function fields, each formal proximity matrix arises as the proximity matrix of a valuation whose value group is computable from the formal proximity matrix. We also give an example to show that this is false for more general fields. Finally in the case of characteristic zero, our constructions can be seen as a particular case of a structure theorem for zero-dimensional valuations dominating equicharacteristic regular noetherian local rings.     

Valuation and risk assessment of participating life insurance in the presence of credit risk

In participating life insurance, management decisions regarding the asset composition can substantially impact the value of a policy from the policyholders’ perspective as well as the insurer’s risk situation. Due to the long-term guarantees often embedded in these contracts, life insurers typically invest a considerable portion of their capital in long-term assets such as corporate and government bonds. Besides interest rate risk, the value of these bond investments is thus particularly influenced by credit risk. Thus, the aim of this paper is to examine the impact of market risk associated with the asset composition on fair valuation and risk assessment with focus on credit risk and its interaction with equity risk and interest rate risk. Our analysis emphasizes that the consideration of credit risk associated with bonds has a strong impact on the fair valuation and risk measurement in the context of participating life insurance contracts, even in case of higher grade bond exposures.     

The Shapley Valuation Function for Strategic Games in which Players Cooperate

In this note we use the Shapley value to define a valuation function. A valuation function associates with every non-empty coalition of players in a strategic game a vector of payoffs for the members of the coalition that provides these players’ valuations of cooperating in the coalition. The Shapley valuation function is defined using the lower-value based method to associate coalitional games with strategic games that was introduced in Carpente et al. (2005). We discuss axiomatic characterizations of the Shapley valuation function.     

Plane valuations and their completions

We give explicit formulae to compute plane valuations. The main tool is a collection of expressions called Hamburger-Noether expan-sion. These expansions classify valuations and moreover give us some parametric equations for them.

We apply the above results to study the completion v of a plane valuation v. To do it we improve the above classification. This improvement affects the valuations associated to formal branches, since they are the only ones presenting differences among the usual invariants associated to v and to[vcirc]     

Valuations of glued near hexagons

Valuations of near polygons were introduced in [ 12 ] as an important tool for classifying dense near polygons. In the present article, we will introduce the class of the semi‐diagonal valuations. These valuations live in glued near hexagons. A glued near hexagon S can be coordinatized by a pair of admissible triples; such triples consist of a Steiner system , a group G, and a certain nice map . We will give a necessary and sufficient condition for the existence of semi‐diagonal valuations in in terms of these two admissible triples. For two classes of glued near hexagons, we will use this condition to determine all semi‐diagonal valuations. Each semi‐diagonal valuation will also give rise to a hyperplane of the glued near hexagon. © 2006 Wiley Periodicals, Inc. J Combin Designs 15: 35–48, 2007