167 research outputs found
Decision Making in Structured Finance: a case in Risk-Adjusted Performance Computation.
No full textThe paper investigates the computation of a decision criterion for portfolio choices in the case of structured bonds. The main issue is the computation and the application of risk adjusted indicators as tool to select either the asset portfolio given a structured bond, or
the bond structure given an existing coverage asset portfolio. The computation of such indicator is suitable for the appraisal of both portfolio optimization and potential profits of the structured issuance. The selection tool is put into an asset and liability management decision making context, where the relationship between the expected result and the capital at risk are compared in order to evaluate
the issuance of the bond and the expected rate of return of the whole portfolio. The case examined is referred to an equity linked bond and is treated by means of Monte Carlo simulations to identify the best portfolio according to the issuer targets and constraints
Managing structured bonds: An analysis using RAROC and EVA
No full textThe paper investigates a decision criterion for structured bonds portfolio choices. The main issue is the application of risk adjusted indicators as tools to select either the asset portfolio given a structured bond, or the bond structure given an existing coverage asset portfolio. Such indicator is suitable for the appraisal of both portfolio management and potential profits of the structured issue. The selection tool is put into an asset and liability management decision making context, where the relationship between the expected profit and the capital at risk are compared in order to evaluate the issue of the bond and the expected rate of return of the whole portfolio. The case is referred to an equity linked bond and is treated by means of Monte Carlo simulations to identify the best portfolio according to the issuer targets and constraints
The riskiness of longevity indexed life annuities in a stochastic Solvency II perspective
No full textThis paper investigates the problem of quantifying the impact of unex- pected deviations of mortality trend on a longevity indexed life annuity in a Solvency II perspective. Solvency II quantitative requirements regulate the margins required to offset the insurance risk in a one year risk horizon. Indeed, the idea of deepening the expected changes of future mortality rates over a single year is gaining. In the following the authors propose a com- putational tractable approach to assess the technical provisions by means of an internal model, in line with Solvency II directives. The impact of adverse effects of the mortality dynamics is investigated. Mortality is modelled by means of a stochastic CIR type model; an ex post analysis is proposed relying on Italian mortality data
The security mortgage valuation in a stochastic perspective
No full textThe reverse mortgage market has been expanding rapidly in developed
economies in recent years. Reverse mortgages provide an alternative source
of funding for retirement income and health care costs. Increase in life expectancies
and decrease in the real income at retirement continue to worry
those who are retired or close to retirement. Therefore, nancial products
that help to alleviate the
isk of living longer" continue to be attractive
among the retirees. Reverse mortgage contracts involve a range of risks from
the insurer's perspective. When the outstanding balance exceeds the housing
value before the loan is settled, the insurer suers an exposure to crossover
risk induced by three risk factors: interest rates, house prices and mortality
rates. We analyse the combined impact of these risks on pricing and the
risk prole of reverse mortgage loans in a stochastic interest-mortality-house
pricing model. Our results show that pricing of reverse mortgages loans does
not accurately assess the risks underwritten by reverse mortgages lenders.In
particular, it fails to take into account mortality improvements substantially
underestimating the longevity risk involved in reverse mortgage loans
Measuring and Managing the Longevity Risk: An Empirical evidence from the Italian Pension Market
No full text1. Life annuity portfolios: risk-adjusted valuations and suggestions on the product attractiveness
No full textSolvency assessing is a compelling issue for the insurance industry, also in light of the current international risk-based regulations. Internal models have to take into account risk/profit indicators, in order to provide flexible tools aimed at valuing solvency. We focus on a variable annuity with an embedded option involving a participation level which depends on the period financial result. We realize a performance evaluation by means of a suitable indicator, which properly captures both financial and demographic risk drivers.
In fact, in the case of life annuity business, assessing solvency has to be framed within a wide time horizon, where specific financial and demographic risks are realized. In this order of ideas, solvency indicators have to capture the amount of capital to cope with the impact of those risk sources over the considered period.
The analysis is carried out in accordance with a management perspective, apt to measure the business performance, which requires a correct risk control; in particular we present a study of the dynamics of the the profit realized per unit of the total financial value of the contract.
On the other hand, the consumer profitability is also measured by means of an utility-equivalent fixed life annuity. According to the insureds’ point of view, we measure their perception of the contract profitability within the expected utility approach
The value at risk of the mathematical provision: Critical issues
No full textThe paper addresses the calculation of the value at risk of the mathematical provision applied in a fair valuation context. Following a balance-sheet approach, the classical definition of VaR may result in either a profit shrinkage or a proper loss. Therefore, the classical portfolio return distribution can be redesigned as a liability cost distribution, where critical values lie in the right-hand tail. In the case of the mathematical provision, the expected cost can be easily linked to the expected value of the reserve at the end of the risk horizon. After an overall view on the VaR problems from a managerial perspective, the paper presents, in addition to the choice of the VaR model and the number of risk factors to take into account, describing the calculation technique. The calculation, performed using a simulation approach, is developed as an application case of a life annuity portfolio and provides an estimate of the worst-case loss at a fixed confidence level after a fixed period of time
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