Optimal portfolio choice for an insurer with loss aversion

The problem of optimal investment for an insurance company attracts more attention in recent years. In general, the investment decision maker of the insurance company is assumed to be rational and risk averse. This is inconsistent with non fully rational decision-making way in the real world. In this paper we investigate an optimal portfolio selection problem for the insurer. The investment decision maker is assumed to be loss averse. The surplus process of the insurer is modeled by a Lévy process. The insurer aims to maximize the expected utility when terminal wealth exceeds his aspiration level. With the help of martingale method, we translate the dynamic maximization problem into an equivalent static optimization problem. By solving the static optimization problem, we derive explicit expressions of the optimal portfolio and the optimal wealth process.     

Optimal consumption and portfolio choice for pooled annuity funds

This paper presents the optimal continuous time dynamic consumption and portfolio choice for pooled annuity funds. A pooled annuity fund constitutes an alternative way to protect against mortality risk compared to purchasing a life annuity. The crucial difference between the pooled annuity fund and purchase of a life annuity offered by an insurance company is that participants of a pooled annuity fund still have to bear some mortality risk while insured annuitants bear no mortality risk at all. The population of the pool is modelled by employing a Poisson process with time-dependent hazard-rate. It follows that the pool member’s optimization problem has to account for the stochastic investment horizon and for jumps in wealth which occur if another pool member dies. In case the number of pool members goes to infinity analytical solutions are provided. For finite pool sizes the solution of the optimization problem is reduced to the numerical solution of a set of ODEs. A simulation and welfare analysis show that pooled annuity funds insure very effectively against longevity risk even if their pool size is rather small. Only very risk averse investors or those without access to small pools are more inclined to pay a risk premium to access private life annuity markets in order to lay off mortality risk completely. As even families constitute such small pools the model provides theoretical justification for the low empirical annuity demand.     

Insurance and saving: some further results

The purpose of this paper is to provide a joint treatment of the saving and insurance decisions which have very often been dealt with separately in the economic literature. In the present model any decrease in the current consumption level can be used to finance either insurance purchase or an increase in the stock of safe assets held in financial institutions (called ‘deposits’ or ‘contingency reserves fund’ for brevity).The most important result is that, under decreasing temporal risk aversion, deposits and insurance are pure substitutes in the Hicksian sense. Besides, it is shown among other comparative statics results that insurance is not necessarily an inferior good, contrarily to the prevailing view in the literature. Finally, we indicate under which conditions a separation theorem between consumption, insurance and deposits holds. These conditions are either a fair insurance premium or a constant temporal risk aversion. Finally our results are compared to related ones in the literature.     

On the controversy over tailweight of distributions

Although understanding tail behavior of distributions is important in many areas, such as telecommunications network analysis and finance, there is considerable controversy about distinctions between exponential-type and power-type tails. This paper explains why the distinctions are surprisingly difficult for popular methods in the literature, and why particularly large samples are needed for clear discrimination.     

有关保险基金投资的研究

本文我们对保险基金投资的必要性进行了简单说明,然后,利用保费收取与保险赔付之间的时滞,对保险基金进行投资研究,建立了考虑投资人风险偏好的连续时间的保险投资模型,并对最优投资比例进行了研究。     

The efficiency effects of a single market for financial services in Europe

This paper examines the potential efficiency effects of a single market for financial services in Europe. The topics covered include universal banking, the merger and acquisition process itself, cross-border ownership and management of financial institutions, and the effects of consolidation of financial institutions on the supply of relationship lending services to informationally opaque small businesses. The research reviewed here suggests that the creation of a single market for the European financial services industry is not likely to bring about strong efficiency gains and that cross-border efficiency barriers may prevent the single market from becoming a reality.     

A general model of insurance and investment risk diversification

This article presents a model of insurance and investment risk diversification. An in-depth analysis of the mathematical formulation of the risk is presented. In this regard, we introduce a new concept called the substitution principle to formulate the model rigorously. We show that, if the investment risks are normally non-linear, the insurance risks are linear in nature. This proves that the well-known diversification principle has to be viewed differently in finance and in insurance.     

Efficient risk allocation within a non-life insurance group under Solvency II Regime

Intra-group transfers are risk management tools that are usually widely used to optimise the risk position of an insurance group. In this paper, it is shown that premium and liability transfers could be optimally made in such a way as to reduce the amount of Technical Provisions and Minimum Capital Requirement for the entire insurance conglomerate. These levels of required capital represent the minimal amount that needs to be held by the insurance group without regulator intervention, according to the Solvency II regulation. We assume that only proportional risk transfers are feasible, since such transfers are not difficult to administer for a large scaled insurance group, as is always the case. In addition, any risk shifting should be made for commercial purposes in order to be considered acceptable by the local regulators that impose restrictions on how much the assets within an insurance group are fungible. Our numerical examples illustrate the efficiency of the optimal proportional risk transfers which can easily be implemented, in terms of computation, in any well-known solver even for an insurance conglomerate with many subsidiaries. We found that our proposed optimal proportional allocations are more beneficial for large insurance group, since the relative reduction in capital requirement tends to be small, whereas the gain in absolute terms is quite significant for large scaled insurance group.