Uniform partition extensions,a generating functions perspective

In this paper, a bivariate generating function CF(x, y) =f(x)-yf(xy)1-yis investigated, where f(x)= n 0fnxnis a generating function satisfying the functional equation f(x) = 1 + r j=1 m i=j-1aij xif(x)j.In particular, we study lattice paths in which their end points are on the line y = 1. Rooted lattice paths are defined. It is proved that the function CF(x, y) is a generating function defined on some rooted lattice paths with end point on y = 1. So, by a simple and unified method, from the view of lattice paths, we obtain two combinatorial interpretations of this bivariate function and derive two uniform partitions on these rooted lattice paths.     

Capital allocation for portfolios with non-linear risk aggregation

Existing risk capital allocation methods, such as the Euler rule, work under the explicit assumption that portfolios are formed as linear combinations of random loss/profit variables, with the firm being able to choose the portfolio weights. This assumption is unrealistic in an insurance context, where arbitrary scaling of risks is generally not possible. Here, we model risks as being partially generated by Lévy processes, capturing the non-linear aggregation of risk. The model leads to non-homogeneous fuzzy games, for which the Euler rule is not applicable. For such games, we seek capital allocations that are in the core, that is, do not provide incentives for splitting portfolios. We show that the Euler rule of an auxiliary linearised fuzzy game (non-uniquely) satisfies the core property and, thus, provides a plausible and easily implemented capital allocation. In contrast, the Aumann–Shapley allocation does not generally belong to the core. For the non-homogeneous fuzzy games studied, Tasche’s (1999) criterion of suitability for performance measurement is adapted and it is shown that the proposed allocation method gives appropriate signals for improving the portfolio underwriting profit.     

Dynamics and optimal control in a spatially structured economic growth model with pollution diffusion and environmental taxation

In the first part of this paper we present a spatially structured dynamic economic growth model which takes into account the level of pollution and a possible taxation based on the amount of produced pollution. In the second part we analyze an optimal harvesting control problem with an objective function composed of three terms, namely the intertemporal utility of the decision maker, the space–time average of the level of pollution in the habitat, and the disutility due to the imposition of taxation.     

A dynamic Stackelberg duopoly model with different strategies

In this paper, a duopoly Stackelberg model of competition on output is formulated. The firms announce plan products sequentially in planning phase and act simultaneously in production phase. For the duopoly Stackelberg model, a nonlinear dynamical system which describes the time evolution with different strategies is analyzed. We present results on existence, stability and local bifurcations of the equilibrium points. Numerical simulations demonstrate that the system with varying model parameters may drive to chaos and the loss of stability may be caused by period doubling bifurcations. It is also shown that the state variables feedback and parameter variation method can be used to keep the system from instability and chaos.     

Valuation perspectives and decompositions for variable annuities with GMWB riders

The guaranteed minimum withdrawal benefit (GMWB) rider, as an add on to a variable annuity (VA), guarantees the return of premiums in the form of periodic withdrawals while allowing policyholders to participate fully in any market gains. GMWB riders represent an embedded option on the account value with a fee structure that is different from typical financial derivatives. We consider fair pricing of the GMWB rider from a financial economic perspective. Particular focus is placed on the distinct perspectives of the insurer and policyholder and the unifying relationship. We extend a decomposition of the VA contract into components that reflect term-certain payments and embedded derivatives to the case where the policyholder has the option to surrender, or lapse, the contract early.     

Calculation of Bayes premium for conditional elliptical risks

In this paper we discuss the calculation of the Bayes premium for conditionally elliptical multivariate risks. In our framework the prior distribution is allowed to be very general requiring only that its probability density function satisfies some smoothness conditions. Based on the previous results of Landsman and Nešlehová (2008) and Hamada and Valdez (2008) we show in this paper that for conditionally multivariate elliptical risks the calculation of the Bayes premium is closely related to the Brown identity and the celebrated Stein’s lemma.     

Naiveté and sophistication in dynamic inconsistency

This paper introduces a general framework for dealing with dynamic inconsistency in the context of Markov decision problems. It decouples and examines concepts that are often entwined in the literature. It distinguishes between the decision maker and her various temporal selves, and between the beliefs and intentions of the selves. The creation of a unified formalism to deal with dynamic inconsistency allows for the introduction of a hybrid decision maker, who is naive sometimes, sophisticated at others. Such a hybrid decision maker can be used to model situations where type determination is endogenous. Interestingly, the analysis of hybrid types indicates that self-deception can be optimal.     

On three-term recurrence and Christoffel–Darboux identity for orthogonal rational functions on the real line

First, we give an algebraic proof to the Christoffel–Darboux identity of formal orthogonal rational functions on the real line by exposing some underlying algebraic properties. This proof does not involve the three-term recurrence relationship. Besides, it is shown that if a family of rational functions satisfies the Christoffel–Darboux relation, then it also admits a three-term recurrence relationship. Thus, the equivalence between both relations is revealed.