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Article
Publication date: 16 August 2011

Mariarosaria Coppola, Emilia Di Lorenzo, Albina Orlando and Marilena Sibillo

The demographic risk is the risk due to the uncertainty in the demographic scenario assumptions by which life insurance products are designed and valued. The uncertainty…

2368

Abstract

Purpose

The demographic risk is the risk due to the uncertainty in the demographic scenario assumptions by which life insurance products are designed and valued. The uncertainty lies both in the accidental (insurance risk) and systematic (longevity risk) deviations of the number of deaths from the value anticipated for it. This last component gives rise to the risk due to the randomness in the choice of the survival model for valuations (model risk or projection risk). If the insurance risk component can be assumed negligible for well‐diversified portfolios, as in the case of pension annuities, longevity risk is crucial in the actuarial valuations. The question is particularly decisive in contexts in which the longevity phenomenon of the population is strong and pension annuity portfolios constitute a meaningful slice of the financial market – both typical elements of Western economies. The paper aims to focus on the solvency appraisal for a portfolio of life annuities, deepening the impact of the demographic risk according to suitable risk indexes apt to describe its evolution in time.

Design/methodology/approach

The financial quantity proposed for representing the economic wealth of the life insurance company is the stochastic surplus, and the paper analyses the impact on it of different demographic assumptions by means of risk indicators as the projection risk index, the quantile surplus valuation and the ruin probability. By means of the proposed models, the longevity risk is mainly taken into account in a stochastic scenario for the financial risk component, in order to consider their interactions, too. In order to furnish practical details significant in the portfolio risk management, several numerical applications clarify the practical meaning of the models in the solvency context.

Findings

This paper studies the impact on the portfolio surplus of the systematic demographic risk, taking into account their interaction with the financial risk sources. In this order of ideas, the internal risk profile of a life annuity portfolio is deeply investigated by means of suitable risk indexes: in a solvency analysis perspective, some possible scenarios for the evolution of death rates (generated by different survival models) are considered and this paper evaluates the impact on the portfolio surplus caused by different choices of the demographic model. The first index is deduced by a variance decomposition formula, the other ones involve the conditional quantile calculus and the ruin probability. Such indexes constitute benchmarks, whose conjoined use provides useful information to the meeting of the solvency requirements.

Originality/value

With respect to the recent actuarial literature, in which the most important contribution on the surplus analysis has been given by Lisenko et al. – where the analysis focuses on the financial aspect applied to portfolios of temporary and endowment contracts – the paper considers life annuity portfolios, taking into account the effect of the systematic demographic risk and its interactions with the financial risk components.

Details

The Journal of Risk Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 27 December 2021

Wellington Charles Lacerda Nobrega, Cássio da Nóbrega Besarria and Edilean Kleber da Silva Bejarano Aragón

This paper aims to investigate the existing relations between the management of public bonds on the dynamics of debt, term structure of interest rates and economic cycle…

Abstract

Purpose

This paper aims to investigate the existing relations between the management of public bonds on the dynamics of debt, term structure of interest rates and economic cycle, through a dynamic stochastic general equilibrium model (DSGE), which was estimated through Bayesian inference techniques using data from Brazil.

Design/methodology/approach

The model developed was used to investigate the effects of the public debt average maturity management when the economy faces a monetary policy shock. For this, three management scenarios are evaluated, including Brazilian securities average term.

Findings

Contrary to what might be inferred from DSGE models that limited the analysis of the debt term by imposing only one-period bonds, a contractionary monetary policy shock does not necessarily cause public debt to increase significantly. Debt term structure plays a crucial role in this result since the government does not need to roll the debt over at higher costs when the debt term profile is longer, reducing the debt service costs and then the impact on the overall debt.

Originality/value

Despite the relevance of this theme and its implications for the dynamics of the economy, there is still a gap to be filled in the literature when using DSGE models, since most part of the work that used this methodology limited the analysis of the debt term by imposing that government issues only one-period bonds. This paper differs from the others insofar as it promotes an investigation focused on the role played by debt maturity management on the performance of the contractionary monetary policy. This approach can generate a better understanding of debt management policy and its interaction with fiscal and monetary policies.

Details

Journal of Economic Studies, vol. 49 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 6 August 2020

Mohammad Tavassoli, Amirali Fathi and Reza Farzipoor Saen

The purpose of this study is to propose a novel super-efficiency DEA model to appraise the relative efficiency of DMUs with zero data and stochastic data. Our model can…

Abstract

Purpose

The purpose of this study is to propose a novel super-efficiency DEA model to appraise the relative efficiency of DMUs with zero data and stochastic data. Our model can work with both variable returns to scale (VRS) and constant returns to scale (CRS).

Design/methodology/approach

This study proposes a new stochastic super-efficiency DEA (SSDEA) model to assess the performance of airlines with stochastic and zero inputs and outputs.

Findings

This paper proposes a new analysis and contribution to the knowledge of efficiency assessment with stochastic super-efficiency DEA model by (1) using input saving and output surplus index for efficient DMUs to get the optimal solution; (2) obtaining efficiency scores from the proposed model that are equivalent to original stochastic super-efficiency model when feasible solutions exist. A case study is given to illustrate the applicability of our proposed model. Also, poor performance reasons are identified to improve the performance of inefficient airlines.

Originality/value

For the first time, a new SSDEA model for ranking DMUs is proposed. The introduced model produces a feasible solution when dealing with zero input or output. This paper applies the input saving and output surplus concept to rectify the infeasibility problem in the stochastic DEA model.

Details

Benchmarking: An International Journal, vol. 28 no. 1
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 8 January 2018

Wenyan Zhuo, Honglin Yang and Xu Chen

The purpose of this paper is to build a phase-type risk model with stochastic return on investment and random observation periods to characterize the ruin quantities under…

Abstract

Purpose

The purpose of this paper is to build a phase-type risk model with stochastic return on investment and random observation periods to characterize the ruin quantities under which the insurance company may take effective investment strategies to avoid bankruptcy.

Design/methodology/approach

By the Markov property and Ito’s formula, this paper derives the integro-differential equations in which the interclaim times follow a phase-type distribution. Using the sinc method, this paper obtains the approximate solutions of the expected discounted penalty function. The numerical examples are given to verify the robustness of the proposed sinc method.

Findings

This paper discloses the relationship between the investment strategy and initial surplus level. The insurance company with a high initial surplus level prefers high risk portfolios to earn more profit. Contrarily, the insurance company would invest low risk portfolios to avoid bankruptcy. In addition, this paper shows that a short observation period would bring higher ruin probability.

Originality/value

The risk model is distinct in that a phase-type risk model is constructed with stochastic return on investment and random observation periods. These considerations in the risk model are in sharp contrast to the setting in which the stochastic return on investment is observed continuously. In practice, the insurance company only can periodically observe the surplus level to check the balance of the book. This setting, therefore, is difficult to adopt. This paper develops a sinc method to solve the approximate solutions of the expected discounted penalty function.

Article
Publication date: 3 May 2013

Fung Kwan, Yanrui Wu and Shuaihe Zhuo

This paper aims to contribute to the pool of studies of rural underemployment in China. It is devoted to the conceptualization and measurement of surplus labour.

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Abstract

Purpose

This paper aims to contribute to the pool of studies of rural underemployment in China. It is devoted to the conceptualization and measurement of surplus labour.

Design/methodology/approach

The agricultural labour requirement function is estimated by the stochastic frontier analysis (SFA) with China's prefecture‐level data. Surplus labour or inefficient labour is obtained by subtracting the required labour from the actual labour participated in agriculture.

Findings

The authors' analysis indicates that the existing size of agricultural surplus labour in rural China is still significantly large with the continued practice of the household registration system and China's WTO membership. However, the size has been decreasing over the last decade.

Research limitations/implications

Quality of data might affect the authors' estimates.

Practical implications

The phenomenon of the coexistence of surplus agricultural labour and shortage of workers in non‐agricultural production in urban China was discussed in line with the authors' research findings, as this has important impacts on the policies of rural industrialization in China.

Social implications

This paper further argues that China is probably experiencing the second stage of the Lewis‐Fei‐Ranis dualistic economic framework.

Originality/value

The authors' paper is probably the first to use prefecture data and SFA for panel data study of surplus agricultural labour in China. The analysis is essential to the understanding of the rural labour market during its rapid transition.

Details

China Agricultural Economic Review, vol. 5 no. 2
Type: Research Article
ISSN: 1756-137X

Keywords

Book part
Publication date: 1 January 2006

Richard A. Lewin, Marc J. Sardy and Stephen E. Satchell

Investors often have much of their portfolios invested in equities that are exposed to interest rate risk. Hedging underlying exposures are not easy; whereas fixed income…

Abstract

Investors often have much of their portfolios invested in equities that are exposed to interest rate risk. Hedging underlying exposures are not easy; whereas fixed income investors have duration to immunize bond portfolios from small fluctuations in interest rates. US equity duration estimates from dividend discount models result in long durations – often in excess of 50 years. Based on the UK data, we develop an alternative approach to generate equity duration as a by-product of asset pricing. Our analysis suggests that the equity premium puzzle may comprise an important element in reconciling this approach to equity duration, with traditional DDM alternatives.

Details

Value Creation in Multinational Enterprise
Type: Book
ISBN: 978-1-84950-475-1

Abstract

Details

Structural Models of Wage and Employment Dynamics
Type: Book
ISBN: 978-0-44452-089-0

Article
Publication date: 1 December 1997

Philip M. Booth

Claims as property modelling and forecasting techniques have developed to take account of new investment theories, property researchers have tended to follow the approach…

2011

Abstract

Claims as property modelling and forecasting techniques have developed to take account of new investment theories, property researchers have tended to follow the approach of modern portfolio theory and, sometimes, the capital asset pricing model (CAPM). Argues that one of the reasons why property is often not included in actuarial property forecasting models for the purpose of asset allocation (which is a widespread perception in the property industry) is because actuaries have not made clear to property researchers the forms of their models, which are often quite different from those used in others parts of the finance literature. Explains how traditional investment theory can be adapted for actuarial use and how actuaries use forecasting models in asset allocation. Areas of property research which would assist actuaries develop better property forecasting models are identified.

Details

Journal of Property Finance, vol. 8 no. 4
Type: Research Article
ISSN: 0958-868X

Keywords

Article
Publication date: 5 June 2019

Debadyuti Das, Virander Kumar, Amit Kumar Bardhan and Rahul Kumar

The study aims to find out an appropriate volume of power to be procured through long-term power purchase agreements (PPAs), the volume to be sourced from the power…

Abstract

Purpose

The study aims to find out an appropriate volume of power to be procured through long-term power purchase agreements (PPAs), the volume to be sourced from the power exchange through day-ahead and term-ahead options and also a suitable volume to be sold at different points of time within a day, which would finally lead to the optimum cost of power procurement.

Design/methodology/approach

The study has considered a Delhi-based power distribution utility and has collected all relevant data from its archival sources. A stochastic optimization model has been developed to capture the problem of power procurement faced by the distribution utility, which is modelled as a mixed integer linear programming problem. Sensitivity analyses were carried out on the important parameters including hourly demand of power, unit variable cost of power available through PPAs, maximum back-down percentage allowed under PPAs, etc., to investigate their impact on daily cost of power under PPAs, daily cost of power under day-ahead and term-ahead options, daily sales revenue and also the net total daily cost of power procurement.

Findings

The findings include the appropriate volume of power procured from different suppliers through PPAs and from the power exchange under day-ahead and term-ahead options and also the surplus volume of power sold under the day-ahead arrangement. It has also computed the total cost of power purchased under PPAs, the cost of power purchased from the power exchange under day-ahead and term-ahead options and also the revenue generated out of the sale of surplus power under the day-ahead arrangement. In addition, it has also presented the results of sensitivity analyses, which provide rich managerial insights.

Originality/value

The paper makes two significant contributions to the existing body of power procurement literature. First, the stochastic mixed-integer linear programming model helps decision makers in determining the right volume of power to be purchased from different sources. Second, based on the findings of the procurement model, a power procurement framework is developed considering the dimensions of uncertainty in power supply and the cost of power procurement. This power procurement framework would aid managers in making procurement decisions under different scenarios.

Article
Publication date: 28 January 2020

Junfei Ding and Wenbin Wang

The purpose of this paper is to investigate the retailer’s strategy of information sharing in a green supply chain with promotional effort, and the impact of information…

Abstract

Purpose

The purpose of this paper is to investigate the retailer’s strategy of information sharing in a green supply chain with promotional effort, and the impact of information sharing on the decisions and profits of the manufacturer and the retailer.

Design/methodology/approach

The developed models aim to maximize the profits of the manufacturer, the retailer and the green supply chain system. The game theory is used to obtain the equilibrium solutions of both the manufacturer and the retailer. A two-part compensation (TPC) contract is designed to motivate the retailer to share information with the retailer. Numerical examples are used to show the impact of parameters on decisions by Matlab 2014.

Findings

The results show that the green degree increases while the promotional effort level decreases when the manufacturer receives the larger demand information from the retailer; information sharing leads to a profit increase to the manufacturer and a profit loss to the retailer, but can increase the profit of supply chain under a certain condition; information sharing reduces the expected consumer surplus. The TPC contract designed in this paper can not only motivate the retailer to share information but also increases the consumer surplus.

Research limitations/implications

The study has been done in a monopoly environment where only a retailer can forecast demand information. It is an interesting direction of future research when considering there are more retailers who can forecast such information in a supply chain.

Originality/value

There exist two main aspects that are different from the existing literature. The stochastic demand function related to the retail price, the green degree and the promotional effort have never appeared in previous literature. This paper considers a green product supply chain with a manufacturer who produces green products and a retailer who has an information advantage because of her promotional effort; this paper investigates the impact of information sharing on the consumer surplus and designs a contract to coordinate the green supply chain.

1 – 10 of 984