10,588 research outputs found

    Premium Risk net of Reinsurance: from short-term to medium term assessment

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    Solvency II requirements introduced new issues for actuarial risk management in non-life insurance, challenging the market to have a consciousness of its own risk profile, and also investigating the sensitivity of the solvency ratio depending on the insurance risks and technical results on either a short-term and medium-term perspective. For this aim, in the present paper, a partial internal model for premium risk is developed for three multi-line non-life insurers, and the impact of some different business mixes is analyzed. Furthermore, the risk-mitigation and profitability impact of reinsurance in the premium risk model are introduced, and a global framework for a feasible application of this model consistent with a medium-term analysis is provided. Numerical results are also figured out with evidence of various effects for several portfolios and reinsurance arrangements, pointing out the main reasons for these differences

    Margin setting with high-frequency data

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    Both in practice and in the academic literature, models for setting margin requirements in futures markets classically use daily closing price changes. However, as well documented by research on high-frequency data, financial markets have recently shown high intraday volatility, which could bring more risk than expected. This paper tries to answer two questions relevant for margin committees in practice: is it right to compute margin levels based on closing prices and ignoring intraday dynamics? Is it justified to implement intraday margin calls? The paper focuses on the impact of intraday dynamics of market prices on daily margin levels. Daily margin levels are obtained in two ways: first, by using daily price changes defined with different time-intervals (say from 3 pm to 3 pm on the following trading day instead of traditional closing times); second, by using 5-minute and 1-hour price changes and scaling the results to one day. Our empirical analysis uses the FTSE 100 futures contract traded on LIFFE.

    Real Option Valuation of a Portfolio of Oil Projects

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    Various methodologies exist for valuing companies and their projects. We address the problem of valuing a portfolio of projects within companies that have infrequent, large and volatile cash flows. Examples of this type of company exist in oil exploration and development and we will use this example to illustrate our analysis throughout the thesis. The theoretical interest in this problem lies in modeling the sources of risk in the projects and their different interactions within each project. Initially we look at the advantages of real options analysis and compare this approach with more traditional valuation methods, highlighting strengths and weaknesses ofeach approach in the light ofthe thesis problem. We give the background to the stages in an oil exploration and development project and identify the main common sources of risk, for example commodity prices. We discuss the appropriate representation for oil prices; in short, do oil prices behave more like equities or more like interest rates? The appropriate representation is used to model oil price as a source ofrisk. A real option valuation model based on market uncertainty (in the form of oil price risk) and geological uncertainty (reserve volume uncertainty) is presented and tested for two different oil projects. Finally, a methodology to measure the inter-relationship between oil price and other sources of risk such as interest rates is proposed using copula methods.Imperial Users onl

    Fulfilment of the Maastricht Inflation Criterion by the Czech Republic: Potential Costs and Policy Options

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    The purpose of this paper is twofold: firstly, to identify and quantify the potential costs to the Czech economy should fulfilment of the Maastricht inflation criterion (MIC) require disinflation; and secondly, to discuss and suggest policies geared towards minimising the costs related to meeting the MIC. We assume that the real appreciation of the koruna will be about 1.5% during the reference period. Three disinflation simulations are derived from this assumption. The results show that a decline in inflation by 0.5 p.p., 1 p.p. and 1.5 p.p. leads to a cumulative loss of output reaching about 0.5%, 1% and 1.6% respectively of annual potential GDP over a period of four years. The time restriction imposed on the simulations implies that the shorter the time to reach a given lower level of inflation, the higher the initial increase in the interest rate and the more aggressive the policy rule needed. The simulation results and the likely application of the monetary convergence criteria are relevant to the discussion of policy options. We argue that due to the asymmetry of the Maastricht exchange rate criterion (MERC), allowing for nominal appreciation rather than depreciation, fulfilment of the MIC should be superior. Also, we suggest that the main task for the CNB will be to focus on reaching a level of inflation consistent with the presumed level of the MIC sufficiently early before the reference period. This may require a downward adjustment of the CNBññ‚¬ñ„±s inflation point target and an extension of the current policy horizon.Disinflation, EMU entry, euro adoption, Maastricht inflation criterion, policy options, real exchange rate appreciation, output loss.
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