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Shareholders in the Driver’s Seat: Unraveling the Impact on Financial Performance in Latvian Fintech Companies Risks Pub Date : 2024-03-18 Ramona Rupeika-Apoga, Stefan Wendt, Victoria Geyfman
Fintech companies are relatively young and operate in a rapidly evolving and ever-changing industry, which makes it important to understand how different factors, including shareholder presence in management roles, affect their performance. This study investigates the impact of shareholder presence in director and manager positions on the financial performance of Latvian fintechs. Our investigation
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Capital Structure Models and Contingent Convertible Securities Risks Pub Date : 2024-03-18 Di Meng, Adam Metzler, R. Mark Reesor
We implemented a methodology to calibrate capital structure models for banks that have issued contingent convertible securities (CoCos). Typical studies involving capital structure model calibration focus on non-financial firms as they have lower leverage and no contingent convertible securities. From a theoretical perspective, we found that jumps in the asset value process were necessary to obtain
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Assessing Financial Stability in Turbulent Times: A Study of Generalized Autoregressive Conditional Heteroskedasticity-Type Value-at-Risk Model Performance in Thailand’s Transportation Sector during COVID-19 Risks Pub Date : 2024-03-13 Danai Likitratcharoen, Lucksuda Suwannamalik
The Value-at-Risk (VaR) metric serves as a pivotal tool for quantifying market risk, offering an estimation of potential investment losses. Predominantly employed within financial sectors, it aids in adhering to regulatory mandates and in devising capital reserve strategies. Nonetheless, the predictive precision of VaR models frequently faces scrutiny, particularly during crises and heightened uncertainty
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A Quantitative Comparison of Mortality Models with Jumps: Pre- and Post-COVID Insights on Insurance Pricing Risks Pub Date : 2024-03-14 Şule Şahin, Selin Özen
Population events such as natural disasters, pandemics, extreme weather, and wars might cause jumps that have an immediate impact on mortality rates. The recent COVID-19 pandemic has demonstrated that these events should not be treated as nonrepetitive exogenous interventions. Therefore, mortality models incorporating jump effects are particularly important to capture the adverse mortality shocks.
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Value-at-Risk Effectiveness: A High-Frequency Data Approach with Semi-Heavy Tails Risks Pub Date : 2024-03-13 Mario Ivan Contreras-Valdez, Sonal Sahu, José Antonio Núñez-Mora, Roberto Joaquín Santillán-Salgado
In the broader landscape of cryptocurrency risk management, this study delves into the nuanced estimation of Value-at-Risk (VaR) for a uniformly weighted portfolio of cryptocurrencies, employing the bivariate Normal Inverse Gaussian distribution renowned for its semi-heavy tails. Utilizing high-frequency data spanning between 1 January 2017 and 25 October 2022, with a primary focus on Bitcoin and Ethereum
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Unveiling Outperformance: A Portfolio Analysis of Top AI-Related Stocks against IT Indices and Robotics ETFs Risks Pub Date : 2024-03-13 Ali Trabelsi Karoui, Sonia Sayari, Wael Dammak, Ahmed Jeribi
In this study, we delve into the financial market to compare the performance of prominent AI and robotics-related stocks against traditional IT indices, such as the Nasdaq, and specialized AI and robotics ETFs. We evaluate the role of these stocks in diversifying portfolios, analyzing their return potential and risk profiles. Our analysis includes various investment scenarios, focusing on common AI-related
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What Matters for Comovements among Gold, Bitcoin, CO2, Commodities, VIX and International Stock Markets during the Health, Political and Bank Crises? Risks Pub Date : 2024-03-04 Wajdi Frikha, Azza Béjaoui, Aurelio F. Bariviera, Ahmed Jeribi
This paper analyzes the connectedness between gold, wheat, and crude oil futures, Bitcoin, carbon emission futures, and international stock markets in the G7, BRICS, and Gulf regions with the outbreak of exogenous and unexpected shocks related to health, banking, and political crises. To this end, we use a wavelet-based method on the returns of different assets during the period 2 January 2019, to
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The Regime-Switching Structural Default Risk Model Risks Pub Date : 2024-03-04 Andreas Milidonis, Kevin Chisholm
We develop the regime-switching default risk (RSDR) model as a generalization of Merton’s default risk (MDR) model. The RSDR model supports an expanded range of asset probability density functions. First, we show using simulation that the RSDR model incorporates sudden changes in asset values faster than the MDR model. Second, we empirically implement the RSDR, MDR and an extension of the MDR model
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The Role of Longevity-Indexed Bond in Risk Management of Aggregated Defined Benefit Pension Scheme Risks Pub Date : 2024-03-06 Xiaoyi Zhang, Yanan Li, Junyi Guo
Defined benefit (DB) pension plans are a primary type of pension schemes with the sponsor assuming most of the risks. Longevity-indexed bonds have been used to hedge or transfer risks in pension plans. Our objective is to study an aggregated DB pension plan’s optimal risk management problem focusing on minimizing the solvency risk over a finite time horizon and to investigate the investment strategies
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Robust Estimation of the Tail Index of a Single Parameter Pareto Distribution from Grouped Data Risks Pub Date : 2024-03-01 Chudamani Poudyal
Numerous robust estimators exist as alternatives to the maximum likelihood estimator (MLE) when a completely observed ground-up loss severity sample dataset is available. However, the options for robust alternatives to a MLE become significantly limited when dealing with grouped loss severity data, with only a handful of methods, like least squares, minimum Hellinger distance, and optimal bounded influence
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Navigating Inflation Challenges: AI-Based Portfolio Management Insights Risks Pub Date : 2024-03-01 Tibor Bareith, Tibor Tatay, László Vancsura
After 2010, the consumer price index fell to a low level in the EU. In the euro area, it remained low between 2010 and 2020. The European Central Bank has even had to take action against the emergence of deflation. The situation changed significantly in 2021. Inflation jumped to levels not seen for 40 years in the EU. Our study aims to use artificial intelligence to forecast inflation. We also use
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Market Equilibrium and the Cost of Capital with Heterogeneous Investment Horizons Risks Pub Date : 2024-02-29 Moshe Levy, Haim Levy
Expected returns, variances, betas, and alphas are all non-linear functions of the investment horizon. This seems to be a fatal conceptual problem for the capital asset pricing model (CAPM), which assumes a unique common horizon for all investors. We show that under the standard assumptions, the theoretical CAPM equilibrium surprisingly holds with the 1-period parameters, even when investors have heterogeneous
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Climate Change-Related Disaster Risk Mitigation through Innovative Insurance Mechanism: A System Dynamics Model Application for a Case Study in Latvia Risks Pub Date : 2024-02-28 Maksims Feofilovs, Andrea Jonathan Pagano, Emanuele Vannucci, Marina Spiotta, Francesco Romagnoli
This study explores how the System Dynamics modeling approach can help deal with the problem of conventional insurance mechanisms by studying the feedback loops governing complex systems connected to the disaster insurance mechanism. Instead of addressing the disaster’s underlying risk, the traditional disaster insurance strategy largely focuses on providing financial security for asset recovery after
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When to Hedge Downside Risk? Risks Pub Date : 2024-02-18 Christos I. Giannikos, Hany Guirguis, Andreas Kakolyris, Tin Shan (Michael) Suen
Hedging downside risk before substantial price corrections is vital for risk management and long-only active equity manager performance. This study proposes a novel methodology for crafting timing signals to hedge sectors’ downside risk. These signals can be integrated into existing strategies simply by purchasing sector index put options. Our methodology generates successful signals for price corrections
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In Memory of Peter Carr (1958–2022) Risks Pub Date : 2024-02-18 Giuseppe Campolieti, Arash Fahim, Dan Pirjol, Harvey Stein, Tai-Ho Wang, Lingjiong Zhu
The editors of this special issue and several of the contributing authors have known Peter for a long time. We thought that the special issue will be enriched by adding a few personal notes and recollections about our interactions with Peter.
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Analyzing Size of Loss Frequency Distribution Patterns: Uncovering the Impact of the COVID-19 Pandemic Risks Pub Date : 2024-02-18 Shengkun Xie, Yuanshun Li
This study delves into a critical examination of the Size of Loss distribution patterns in the context of auto insurance during pre- and post-pandemics, emphasizing their profound influence on insurance pricing and regulatory frameworks. Through a comprehensive analysis of the historical Size of Loss data, insurers and regulators gain essential insights into the probabilities and magnitudes of insurance
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Do US Active Mutual Funds Make Good of Their ESG Promises? Evidence from Portfolio Holdings Risks Pub Date : 2024-02-18 Massimo Guidolin, Monia Magnani
We investigate the occurrence of greenwashing in the US mutual fund industry. Using panel regression methods, we test whether there exist differences in the portfolio investment behaviors of active equity funds that are self-declared to be driven by ESG motives when compared to all other funds. In particular, we focus on two aspects of funds’ portfolio allocation decisions, i.e., the actual implied
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An Objective Measure of Distributional Estimability as Applied to the Phase-Type Aging Model Risks Pub Date : 2024-02-13 Cong Nie, Xiaoming Liu, Serge B. Provost
The phase-type aging model (PTAM) is a class of Coxian-type Markovian models that can provide a quantitative description of the effects of various aging characteristics. Owing to the unique structure of the PTAM, parametric inference on the model is affected by a significant estimability issue, its profile likelihood functions being flat. While existing methods for assessing distributional non-estimability
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Dynamic Liability-Driven Investment under Sponsor’s Loss Aversion Risks Pub Date : 2024-02-13 Dong-Hwa Lee, Joo-Ho Sung
This paper investigates a dynamic liability-driven investment policy for defined-benefit (DB) plans by incorporating the loss aversion of a sponsor, who is assumed to be more sensitive to underfunding than overfunding. Through the lens of prospect theory, we first set up a loss-aversion utility function for a sponsor whose utility depends on the funding ratio in each period, obtained from stochastic
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Discrete-Time Survival Models with Neural Networks for Age–Period–Cohort Analysis of Credit Risk Risks Pub Date : 2024-02-03 Hao Wang, Anthony Bellotti, Rong Qu, Ruibin Bai
Survival models have become popular for credit risk estimation. Most current credit risk survival models use an underlying linear model. This is beneficial in terms of interpretability but is restrictive for real-life applications since it cannot discover hidden nonlinearities and interactions within the data. This study uses discrete-time survival models with embedded neural networks as estimators
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Robust Portfolio Optimization with Environmental, Social, and Corporate Governance Preference Risks Pub Date : 2024-02-05 Marcos Escobar-Anel, Yiyao Jiao
This study addresses the crucial but under-explored topic of ambiguity aversion, i.e., model misspecification, in the area of environmental, social, and corporate governance (ESG) within portfolio decisions. It considers a risk- and ambiguity-averse investor allocating resources to a risk-free asset, a market index, a green stock, and a brown stock. The study employs a robust control approach rooted
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Quantitative Modeling of Financial Contagion: Unraveling Market Dynamics and Bubble Detection Mechanisms Risks Pub Date : 2024-02-08 Ionuț Nica, Ștefan Ionescu, Camelia Delcea, Nora Chiriță
This study explored the complex interplay and potential risk of financial contagion across major financial indices, focusing on the Bucharest Exchange Trading Investment Funds Index (BET-FI), along with global indices like the S&P 500, Nasdaq Composite (IXIC), and Dow Jones Industrial Average (DJIA). Our analysis covered an extensive period from 2012 to 2023, with a particular emphasis on Romania’s
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Determinants of Life Insurance Consumption in OECD Countries Using FMOLS and DOLS Techniques Risks Pub Date : 2024-02-05 Maheswaran Srinivasan, Subrata Mitra
This paper aims to examine the determinants of life insurance consumption in 30 OECD countries using panel data from 1996 to 2020. This study uses GDP per capita, Life expectancy, Urbanization, School education, and Health expenditure as the determinants to measure the OECD countries’ life insurance consumption. Insurance density is used as a proxy for life insurance consumption. Fully Modified Ordinary
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The Impacts of CAP Subsidies on the Financial Risk and Resilience of Hungarian Farms, 2014–2021 Risks Pub Date : 2024-02-03 Péter Szálteleki, Gabriella Bánhegyi, Zsuzsanna Bacsi
The present paper empirically analyzes the efficiency of European Union (EU) subsidies for farms in the Southern Great Plain region of Hungary between 2014 and 2021. The aim of this analysis was to explore whether the subsidies increased the resilience of farms, enhancing their profitability, liquidity and solvency, and economic efficiency, measured by the usual financial indicators of farm performance
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L1 Regularization for High-Dimensional Multivariate GARCH Models Risks Pub Date : 2024-02-04 Sijie Yao, Hui Zou, Haipeng Xing
The complexity of estimating multivariate GARCH models increases significantly with the increase in the number of asset series. To address this issue, we propose a general regularization framework for high-dimensional GARCH models with BEKK representations, and obtain a penalized quasi-maximum likelihood (PQML) estimator. Under some regularity conditions, we establish some theoretical properties, such
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Features of the Association between Debt and Earnings Quality for Small and Medium-Sized Entities Risks Pub Date : 2024-02-03 José Sequeira, Cláudia Pereira, Luís Gomes, Armindo Lima
The main source of financing is bank loans for Portuguese small and medium-sized entities (SMEs), which implies several constraints to obtaining additional funds. Relying on the argument of Positive Accounting Theory (PAT) that accounting choices are not neutral and on Agency Theory that information asymmetry prevails between insiders and outsiders, we analyzed the impacts of debt on earnings quality
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Model for Technology Risk Assessment in Commercial Banks Risks Pub Date : 2024-02-01 Wenhao Kang, Chi Fai Cheung
As the complexity of banking technology systems increases, the prevention of technological risk becomes an endless battle. Currently, most banks rely on the experience and subjective judgement of experts and employees to allocate resources for technological risk management, which does not effectively reduce the frequency of technology-related incidents. Through an analysis of mainstream risk management
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Bounds for the Ruin Probability in the Sparre–Andersen Model Risks Pub Date : 2024-02-02 Sotirios Losidis, Vaios Dermitzakis
We obtain the upper and lower bounds for the ruin probability in the Sparre–Andersen model. These bounds are established under various conditions: when the adjustment coefficient exists, when it does not exist, and when the interarrival distribution belongs to certain aging classes. Additionally, we improve the Lundberg upper bound for the ruin probability.
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Pricing Life Contingencies Linked to Impaired Life Expectancies Using Intuitionistic Fuzzy Parameters Risks Pub Date : 2024-02-02 Jorge de Andrés-Sánchez
Several life contingency agreements are based on the assumption that policyholders have impaired life expectancy attributable to factors, such as lifestyle, social class, or preexisting health issues. Quantifying two crucial variables, augmented death probabilities and the discount rate of projected cash flows, is essential for pricing such agreements. Information regarding the correct values of these
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Enhancing Sell-Type Home Reversion Products for Retirement Financing Risks Pub Date : 2024-01-29 Koon Shing Kwong, Jing Rong Goh, Ting Lin Collin Chua
Loan-type reverse mortgage plans and sell-type home reversion plans for retirement financing are two well-known equity release plans that entitle homeowners not only to release cash from their properties but also to allow them to age in place. Recently, a new hybrid equity release plan was proposed to incorporate the home reversion plan’s features with an option of staying in the property for a fixed
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A Generalized Linear Model and Machine Learning Approach for Predicting the Frequency and Severity of Cargo Insurance in Thailand’s Border Trade Context Risks Pub Date : 2024-01-30 Praiya Panjee, Sataporn Amornsawadwatana
The study compares model approaches in predictive modeling for claim frequency and severity within the cross-border cargo insurance domain. The aim is to identify the optimal model approach between generalized linear models (GLMs) and advanced machine learning techniques. Evaluations focus on mean absolute error (MAE) and root mean squared error (RMSE) metrics to comprehensively assess predictive performance
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Quadratic Unconstrained Binary Optimization Approach for Incorporating Solvency Capital into Portfolio Optimization Risks Pub Date : 2024-01-29 Ivica Turkalj, Mohammad Assadsolimani, Markus Braun, Pascal Halffmann, Niklas Hegemann, Sven Kerstan, Janik Maciejewski, Shivam Sharma, Yuanheng Zhou
In this paper, we consider the inclusion of the solvency capital requirement (SCR) into portfolio optimization by the use of a quadratic proxy model. The Solvency II directive requires insurance companies to calculate their SCR based on the complete loss distribution for the upcoming year. Since this task is, in general, computationally challenging for insurance companies (and therefore, not taken
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Stochastic Claims Reserve in the Healthcare System: A Methodology Applied to Italian Data Risks Pub Date : 2024-01-29 Claudio Mazzi, Angelo Damone, Andrea Vandelli, Gastone Ciuti, Milena Vainieri
One of the challenges in the healthcare sector is making accurate forecasts across insurance years for claims reserve. Healthcare claims present huge variability and heterogeneity influenced by random decisions of the courts and intrinsic characteristics of the damaged parties, which makes traditional methods for estimating reserves inadequate. We propose a new methodology to estimate claim reserves
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Impact Assessment of Climate Change on Hailstorm Risk in Spanish Wine Grape Crop Insurance: Insights from Linear and Quantile Regressions Risks Pub Date : 2024-01-26 Nan Zhou, José L. Vilar-Zanón
There is growing concern that climate change poses a serious threat to the sustainability of the insurance business. Understanding whether climate warming is a cause for an increase in claims and losses, and how this cause–effect relationship will develop in the future, are two significant open questions. In this article, we answer both questions by particularizing the geographical area of Spain, and
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Responsible Innovations as Tools for the Management of Financial Risks to Projects of High-Tech Companies for Their Sustainable Development Risks Pub Date : 2024-01-27 Elena G. Popkova, Muxabbat F. Xakimova, Marija A. Troyanskaya, Elena S. Petrenko, Olga V. Fokina
This paper is devoted to the resolution of the problem of risk management in a high-risk market environment. The goal of this paper was to study the experience of and prospects for the use of responsible innovations as tools for managing the financial risks of high-tech companies’ projects for their sustainable development (using the example of companies in Russia’s IT sphere in 2022–2023). We used
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The Role of Artificial Intelligence Technology in Predictive Risk Assessment for Business Continuity: A Case Study of Greece Risks Pub Date : 2024-01-23 Stavros Kalogiannidis, Dimitrios Kalfas, Olympia Papaevangelou, Grigoris Giannarakis, Fotios Chatzitheodoridis
This study examined the efficacy of artificial intelligence (AI) technologies in predictive risk assessment and their contribution to ensuring business continuity. This research aimed to understand how different AI components, such as natural language processing (NLP), AI-powered data analytics, AI-driven predictive maintenance, and AI integration in incident response planning, enhance risk assessment
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Analyzing the Impact of Carbon Risk on Firms’ Creditworthiness in the Context of Rising Interest Rates Risks Pub Date : 2024-01-22 Aimee Jean Batoon, Edit Rroji
Carbon risk, a type of climate risk, is expected to have a crucial impact, especially on high-carbon-emitting, “polluting” firms as opposed to less carbon-intensive, “clean” ones. With a rising number of actions and policies being continuously proposed to mitigate these concerns and an increasing number of investors demanding more climate adaptation initiatives, this transition risk will certainly
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Risk Management in Islamic Banking: The Impact of Financial Technologies through Empirical Insights from the UAE Risks Pub Date : 2024-01-23 Mohamed Al Hammadi, Juan Antonio Jimber-Del Río, María Salomé Ochoa-Rico, Orlando Arencibia Montero, Arnaldo Vergara-Romero
Financial technology (fintech) innovations are transforming banking globally. Their adoption poses new opportunities and risks for Islamic banks with unique requirements. This study examines fintech’s implications for risk management effectiveness in United Arab Emirates Islamic banks. A conceptual model incorporates factors like fintech adoption, emerging capabilities, digital maturity, and IT security
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Stochastic Modeling of Wind Derivatives with Application to the Alberta Energy Market Risks Pub Date : 2024-01-23 Sudeesha Warunasinghe, Anatoliy Swishchuk
Wind-power generators around the world face two risks, one due to changes in wind intensity impacting energy production, and the second due to changes in electricity retail prices. To hedge these risks simultaneously, the quanto option is an ideal financial tool. The natural logarithm of electricity prices of the study will be modeled with a variance gamma (VG) and normal inverse Gaussian (NIG) processes
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Multivariate Spectral Backtests of Forecast Distributions under Unknown Dependencies Risks Pub Date : 2024-01-17 Janine Balter, Alexander J. McNeil
Under the revised market risk framework of the Basel Committee on Banking Supervision, the model validation regime for internal models now requires that models capture the tail risk in profit-and-loss (P&L) distributions at the trading desk level. We develop multi-desk backtests, which simultaneously test all trading desk models and which exploit all the information available in the presence of an
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Invariance of the Mathematical Expectation of a Random Quantity and Its Consequences Risks Pub Date : 2024-01-18 Pierpaolo Angelini
Possibility and probability are the two aspects of uncertainty, where uncertainty represents the ignorance of a given individual. The notion of alternative (or event) belongs to the domain of possibility. An event is intrinsically subdivisible and a quadratic metric, whose value is intrinsic or invariant, is used to study it. By subdividing the notion of alternative, a joint (bivariate) distribution
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Maximum Pseudo-Likelihood Estimation of Copula Models and Moments of Order Statistics Risks Pub Date : 2024-01-18 Alexandra Dias
It has been shown that, despite being consistent and in some cases efficient, maximum pseudo-likelihood (MPL) estimation for copula models overestimates the level of dependence, especially for small samples with a low level of dependence. This is especially relevant in finance and insurance applications when data are scarce. We show that the canonical MPL method uses the mean of order statistics, and
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The Moderating Role of Corporate Governance in the Relationship between Leverage and Firm Value: Evidence from the Korean Market Risks Pub Date : 2024-01-15 Ana Belén Tulcanaza-Prieto, Younghwan Lee, Wendy Anzules-Falcones
This study examines the moderating function of corporate governance (CG) to the relationship between leverage and firm value (FV) using Korean market data. The study employs ordinary least-squares panel data regressions and two methods to manage endogeneity problems. The findings show a meaningful negative relationship between leverage and FV. This relationship, however, disappears, when the interaction
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A Hybrid Model for Forecasting Realized Volatility Based on Heterogeneous Autoregressive Model and Support Vector Regression Risks Pub Date : 2024-01-16 Yue Zhuo, Takayuki Morimoto
In this study, we proposed two types of hybrid models based on the heterogeneous autoregressive (HAR) model and support vector regression (SVR) model to forecast realized volatility (RV). The first model is a residual-type model, where the RV is first predicted using the HAR model, and the residuals are used to train the SVR model. The residual component is then predicted using the SVR model, and the
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Centrality-Based Equal Risk Contribution Portfolio Risks Pub Date : 2024-01-02 Shreya Patki, Roy H. Kwon, Yuri Lawryshyn
This article combines the traditional definition of portfolio risk with minimum-spanning-tree-based “interconnectedness risk” to improve equal risk contribution portfolio performance. We use betweenness centrality to measure an asset’s importance in a market graph (network). After filtering the complete correlation network to a minimum spanning tree, we calculate the centrality score and convert it
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Credibility Distribution Estimation with Weighted or Grouped Observations Risks Pub Date : 2024-01-03 Georgios Pitselis
In non-life insurance practice, actuaries are often faced with the challenge of predicting the number of claims and claim amounts to be incurred at any given time, which serve to implement fair pricing and reserves given the nature of the risk. This paper extends Jewell’s credible distribution in terms of forecasting the distribution of individual risk in cases where the observations are weighted or
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Socially Responsible Investment Funds—An Analysis Applied to Funds Domiciled in the Portuguese and Spanish Markets Risks Pub Date : 2024-01-02 Luísa Carvalho, Carlos Mota, Patrícia Ramos
Socially responsible investments, also referred to as ethical or sustainable investments, have experienced rapid global growth in recent years. They represent an investment approach that incorporates social, environmental, and ethical considerations into decision-making processes. Consequently, the significance of socially responsible investments has captured the attention of academics, prompting inquiries
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Optimal Static Hedging of Variable Annuities with Volatility-Dependent Fees Risks Pub Date : 2023-12-30 Junsen Tang
Variable annuities (VAs) and other long-term equity-linked insurance products are typically difficult to hedge in the incomplete markets. A state-dependent fee tied with market volatility for VAs is designed to contribute the risk-sharing mechanism between policyholders and insurers. Different from prior research, we discuss several aspects on a fair valuation, fee-rate determination and hedging with
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On the Use of Lehmann’s Alternative to Capture Extreme Losses in Actuarial Science Risks Pub Date : 2023-12-28 Emilio Gómez-Déniz , Enrique Calderín-Ojeda
This paper studies properties and applications related to the mixture of the class of distributions built by the Lehmann’s alternative (also referred to in the statistical literature as max-stable or exponentiated distribution) of the form [G(·)]λ, where λ>0 and G(·) is a continuous cumulative distribution function. This mixture can be useful in economics, financial, and actuarial fields, where extreme
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Gerber-Shiu Metrics for a Bivariate Perturbed Risk Process Risks Pub Date : 2023-12-27 Onno Boxma, Fabian Hinze, Michel Mandjes
We consider a two-dimensional risk model with simultaneous Poisson arrivals of claims. Each claim of the first input process is at least as large as the corresponding claim of the second input process. In addition, the two net cumulative claim processes share a common Brownian motion component. For this model we determine the Gerber–Shiu metrics, covering the probability of ruin of each of the two
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Board Response to Transnational Regulation on Corporate Governance: A Case Study on EU Banking Regulation Risks Pub Date : 2023-12-25 Seppo Ikäheimo, Eduardo Schiehll, Vikash Kumar Sinha
How does a board of directors respond to stringent transnational regulations on corporate governance? We explore this question in a case study that includes interviews with key governance actors of a bank dealing with regulatory changes in the European Union (EU) initiated in 2010 in response to the financial crisis of 2007–2008. Our findings suggest that transnational regulations introduced a conflicting
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Simulation of Dynamic Performance of DeFi Protocol Based on Historical Crypto Market Behavior Risks Pub Date : 2023-12-25 Iveta Grigorova, Aleksandar Karamfilov, Radostin Merakov, Aleksandar Efremov
In a rapidly evolving and often volatile crypto market, the ability to use historical data for simulations provides a more realistic assessment of how decentralized finance (DeFi) protocols might perform. This insight is crucial for participants, developers, and investors seeking to make informed decisions. This paper presents a comprehensive study evaluating the dynamic performance of a newly developed
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Advancing the Use of Deep Learning in Loss Reserving: A Generalized DeepTriangle Approach Risks Pub Date : 2023-12-26 Yining Feng, Shuanming Li
This paper proposes a generalized deep learning approach for predicting claims developments for non-life insurance reserving. The generalized approach offers more flexibility and accuracy in solving actuarial reserving problems. It predicts claims outstanding weighted by exposure instead of loss ratio to remove subjectivity associated with premium weighting. Chain-ladder predicted outstanding claims
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Stochastic Chain-Ladder Reserving with Modeled General Inflation Risks Pub Date : 2023-12-18 Massimo De Felice, Franco Moriconi
We consider two possible approaches to the problem of incorporating explicit general (i.e., economic) inflation in the non-life claims reserve estimates and the corresponding reserve SCR, defined—as in Solvency II—under the one-year view. What we call the actuarial approach provides a simplified solution to the problem, obtained under the assumption of deterministic interest rates and absence of inflation
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Equity Price Dynamics under Shocks: In Distress or Short Squeeze Risks Pub Date : 2023-12-20 Cho-Hoi Hui, Chi-Fai Lo, Chi-Hei Liu
This paper proposes a simple bounded stochastic motion to model equity price dynamics under shocks. The stochastic process has a quasi-bounded boundary which can be breached if the probability leakage condition is met. The quasi-boundedness of the process at the boundary can thus provide an indicator of the possible risk of equities under price shocks or in distress. Empirical calibration of the model
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Asymmetric Effects of Tax Competition on FDI vs. Budget Balance in European OECD Economies: Heterogeneous Panel Approach Risks Pub Date : 2023-12-15 Marina Beljić, Olgica Glavaški, Emilija Beker Pucar, Stefan Stojkov, Jovica Pejčić
The global trends in taxation have generated a “race to the bottom” in capital income taxation, which is intended to be stopped by OECD through the introduction of a global minimum tax rate (15% of effective average tax rate—EATR). The question is whether the defined tax competition floor would have heterogeneous implications in different economies. The aim of this paper is to examine the long-term
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Bidual Representation of Expectiles Risks Pub Date : 2023-12-15 Alejandro Balbás, Beatriz Balbás, Raquel Balbás, Jean-Philippe Charron
Downside risk measures play a very interesting role in risk management problems. In particular, the value at risk (VaR) and the conditional value at risk (CVaR) have become very important instruments to address problems such as risk optimization, capital requirements, portfolio selection, pricing and hedging issues, risk transference, risk sharing, etc. In contrast, expectile risk measures are not
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Consumer Preferences for Health Services Offered by Health Insurance Companies in Germany Risks Pub Date : 2023-12-12 Raphael Schilling, Milena Pavlova, Andrea Karaman
German health insurance companies increasingly strive to position themselves as health partners to their customers to improve customers’ health and contain costs. However, there is uncertainty about customers’ preferences for health services offered by health insurance companies. Therefore, this paper studies consumer preferences for health services that are or could be provided by health insurance
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Option Pricing and Portfolio Optimization under a Multi-Asset Jump-Diffusion Model with Systemic Risk Risks Pub Date : 2023-12-13 Roman N. Makarov
We explore a multi-asset jump-diffusion pricing model, combining a systemic risk asset with several conditionally independent ordinary assets. Our approach allows for analyzing and modeling a portfolio that integrates high-activity security, such as an exchange trading fund (ETF) tracking a major market index (e.g., S&P500), along with several low-activity securities infrequently traded on financial
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Financial Stress and COVID-19: A Comprehensive Analysis of the Factors Associated with the Pandemic Risks Pub Date : 2023-12-13 Keewon Moon, Wookjae Heo, Jae Min Lee, John E. Grable
The COVID-19 pandemic introduced unprecedented challenges for households globally, serving as a precursor to and trigger for financial stress. This study examined the associations across various factors thought to be associated with financial stress (a psychological syndrome) resulting from the COVID-19 pandemic. Using survey data collected in 2019 (n = 997) and 2021 (n = 988), propensity score matching