Risks

5063 KiB

Open AccessArticle

Worst-Case Portfolio Optimization under Stochastic Interest Rate Risk

by Tina Engler and Ralf Korn

Risks 2014, 2(4), 469-488; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040469 - 01 Dec 2014

Cited by 1 | Viewed by 4773

We investigate a portfolio optimization problem under the threat of a market crash, where the interest rate of the bond is modeled as a Vasicek process, which is correlated with the stock price process. We adopt a non-probabilistic worst-case approach for the height [...] Read more.

We investigate a portfolio optimization problem under the threat of a market crash, where the interest rate of the bond is modeled as a Vasicek process, which is correlated with the stock price process. We adopt a non-probabilistic worst-case approach for the height and time of the market crash. On a given time horizon [0; T], we then maximize the investor’s expected utility of terminal wealth in the worst-case crash scenario. Our main result is an explicit characterization of the worst-case optimal portfolio strategy for the class of HARA (hyperbolic absolute risk aversion) utility functions. Full article

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Open AccessEditorial

Special Issue on Risk Management Techniques for Catastrophic and Heavy-Tailed Risks

by Alejandro Balbás and José Garrido

Risks 2014, 2(4), 467-468; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040467 - 14 Nov 2014

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Abstract

The publication of several special issues was part of the initiatives taken in 2013 to launch Risks as a new online journal. It seemed natural to devote one to this important, concrete and complex problem of managing catastrophic and heavy tailed risks. We [...] Read more.

The publication of several special issues was part of the initiatives taken in 2013 to launch Risks as a new online journal. It seemed natural to devote one to this important, concrete and complex problem of managing catastrophic and heavy tailed risks. We received an enthusiastic response last spring to the call for invited and contributed research papers and are proud of the special issue now being published. The emphasis was put on quality rather than quantity; this special issue contains three invited and two contributed research papers. Full article

(This article belongs to the Special Issue Risk Management Techniques for Catastrophic and Heavy-Tailed Risks)

244 KiB

Open AccessArticle

A Duality Result for the Generalized Erlang Risk Model

by Lanpeng Ji and Chunsheng Zhang

Risks 2014, 2(4), 456-466; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040456 - 06 Nov 2014

Cited by 2 | Viewed by 3858

Abstract

In this article, we consider the generalized Erlang risk model and its dual model. By using a conditional measure-preserving correspondence between the two models, we derive an identity for two interesting conditional probabilities. Applications to the discounted joint density of the surplus prior [...] Read more.

In this article, we consider the generalized Erlang risk model and its dual model. By using a conditional measure-preserving correspondence between the two models, we derive an identity for two interesting conditional probabilities. Applications to the discounted joint density of the surplus prior to ruin and the deficit at ruin are also discussed. Full article

316 KiB

Open AccessArticle

A Markov Chain Model for Contagion

by Angelos Dassios and Hongbiao Zhao

Risks 2014, 2(4), 434-455; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040434 - 05 Nov 2014

Cited by 2 | Viewed by 5107

Abstract

We introduce a bivariate Markov chain counting process with contagion for modelling the clustering arrival of loss claims with delayed settlement for an insurance company. It is a general continuous-time model framework that also has the potential to be applicable to modelling the [...] Read more.

We introduce a bivariate Markov chain counting process with contagion for modelling the clustering arrival of loss claims with delayed settlement for an insurance company. It is a general continuous-time model framework that also has the potential to be applicable to modelling the clustering arrival of events, such as jumps, bankruptcies, crises and catastrophes in finance, insurance and economics with both internal contagion risk and external common risk. Key distributional properties, such as the moments and probability generating functions, for this process are derived. Some special cases with explicit results and numerical examples and the motivation for further actuarial applications are also discussed. The model can be considered a generalisation of the dynamic contagion process introduced by Dassios and Zhao (2011). Full article

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236 KiB

Open AccessArticle

A Note on the Fundamental Theorem of Asset Pricing under Model Uncertainty

by Erhan Bayraktar, Yuchong Zhang and Zhou Zhou

Risks 2014, 2(4), 425-433; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040425 - 10 Oct 2014

Cited by 12 | Viewed by 5319

Abstract

We show that the recent results on the Fundamental Theorem of Asset Pricing and the super-hedging theorem in the context of model uncertainty can be extended to the case in which the options available for static hedging (hedging options) are quoted with bid-ask [...] Read more.

We show that the recent results on the Fundamental Theorem of Asset Pricing and the super-hedging theorem in the context of model uncertainty can be extended to the case in which the options available for static hedging (hedging options) are quoted with bid-ask spreads. In this set-up, we need to work with the notion of robust no-arbitrage which turns out to be equivalent to no-arbitrage under the additional assumption that hedging options with non-zero spread are non-redundant. A key result is the closedness of the set of attainable claims, which requires a new proof in our setting. Full article

305 KiB

Open AccessArticle

Measuring Risk When Expected Losses Are Unbounded

by Alejandro Balbás, Iván Blanco and José Garrido

Risks 2014, 2(4), 411-424; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040411 - 30 Sep 2014

Viewed by 4771

Abstract

This paper proposes a new method to introduce coherent risk measures for risks with infinite expectation, such as those characterized by some Pareto distributions. Extensions of the conditional value at risk, the weighted conditional value at risk and other examples are given. Actuarial [...] Read more.

This paper proposes a new method to introduce coherent risk measures for risks with infinite expectation, such as those characterized by some Pareto distributions. Extensions of the conditional value at risk, the weighted conditional value at risk and other examples are given. Actuarial applications are analyzed, such as extensions of the expected value premium principle when expected losses are unbounded. Full article

(This article belongs to the Special Issue Risk Management Techniques for Catastrophic and Heavy-Tailed Risks)

20715 KiB

Open AccessArticle

Tail Risk in Commercial Property Insurance

by Enrico Biffis and Erik Chavez

Risks 2014, 2(4), 393-410; https://0-doi-org.brum.beds.ac.uk/10.3390/risks2040393 - 29 Sep 2014

Viewed by 7218

Abstract

We present some new evidence on the tail distribution of commercial property losses based on a recently constructed dataset on large commercial risks. The dataset is based on contributions from Lloyd’s of London syndicates, and provides information on over three thousand claims occurred [...] Read more.

We present some new evidence on the tail distribution of commercial property losses based on a recently constructed dataset on large commercial risks. The dataset is based on contributions from Lloyd’s of London syndicates, and provides information on over three thousand claims occurred during the period 2000–2012, including detailed information on exposures. We use occupancy characteristics to compare the tail risk profiles of different commercial property exposures, and find evidence of substantial heterogeneity in tail behavior. The results demonstrate the benefits of aggregating granular information on both claims and exposures from different data sources, and provide warning against the use of reserving and capital modeling approaches that are not robust to heavy tails. Full article

(This article belongs to the Special Issue Risk Management Techniques for Catastrophic and Heavy-Tailed Risks)

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Risks, Volume 2, Issue 4 (December 2014) – 7 articles , Pages 393-488

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