371 research outputs found
Hedging Brevity Risk with Mortality-based Securities
In 2003, Swiss Re introduced a mortality-based security designed to hedge excessive mortality changes for its life book of business. The concern was apparently brevity risk, i.e., the risk of premature death. The brevity risk due to a pandemic is similar to the property risk associated with catastrophic events such as earthquakes and hurricanes and the security used to hedge the risk is similar to a CAT bond. This work looks at the incentives associated with insurance-linked securities. It considers the trade-offs an insurer or reinsurer faces in selecting a hedging strategy. We compare index and indemnity-based hedging as alternative design choices and ask which is capable of creating the greater value for shareholders. Additionally, we model an insurer or reinsurer that is subject to insolvency risk, which creates an incentive problem known as the judgment proof problem. The corporate manager is assumed to act in the interests of shareholders and so the judgment proof problem yields a conflict of interest between shareholders and other stakeholders. Given the fact that hedging may improve the situation, the analysis addresses what type of hedging tool would be best to use. We show that an indemnity-based security tends to worsen the situation, as it introduces an additional incentive problem. Index-based hedging, on the other hand, under certain conditions turns out to be beneficial and therefore clearly dominates indemnity-based strategies. This result is further supported by showing that for the same strike prices the current shareholder value is greater with the index-based security than the indemnity-based security
Select Birth Cohorts
Worldwide demographic changes and their implications for governments, corporations, and individuals have been in the focus of public interest for quite some time due to the fiscal risk related to adequate retirement benefits. Through a more detailed analysis of mortality data an additional type of risk can be identified: differences in mortality improvements by birth year, also known as "cohort effects."
Previous contributions have, however, not formalized a suitable measure to further investigate mortality improvements but rather relied on graphical representations without particular focus on individual cohorts but groups of the overall population. No criterion to identify single birth year cohorts as select has been established. A simple criterion for identifying select cohorts is proposed and used here to what country mortality data reveals about the mortality and longevity experience of cohorts. Select cohorts are rare but can be quite different from surrounding cohorts and so may generate financial risks that need to be hedged naturally or artificially with new ART instruments
Select Birth Cohorts
Worldwide demographic changes and their implications for governments, corporations, and individuals have been in the focus of public interest for quite some time due to the fiscal risk related to adequate retirement benefits. Through a more detailed analysis of mortality data an additional type of risk can be identified: differences in mortality improvements by birth year, also known as "cohort effects." Previous contributions have, however, not formalized a suitable measure to further investigate mortality improvements but rather relied on graphical representations without particular focus on individual cohorts but groups of the overall population. No criterion to identify single birth year cohorts as select has been established. A simple criterion for identifying select cohorts is proposed and used here to what country mortality data reveals about the mortality and longevity experience of cohorts. Select cohorts are rare but can be quite different from surrounding cohorts and so may generate financial risks that need to be hedged naturally or artificially with new ART instruments.mortality improvement; longevity trend; select cohort; longevity risk
Hedging Brevity Risk with Mortality-based Securities
In 2003, Swiss Re introduced a mortality-based security designed to hedge excessive mortality changes for its life book of business. The concern was apparently brevity risk, i.e., the risk of premature death. The brevity risk due to a pandemic is similar to the property risk associated with catastrophic events such as earthquakes and hurricanes and the security used to hedge the risk is similar to a CAT bond. This work looks at the incentives associated with insurance-linked securities. It considers the trade-offs an insurer or reinsurer faces in selecting a hedging strategy. We compare index and indemnity-based hedging as alternative design choices and ask which is capable of creating the greater value for shareholders. Additionally, we model an insurer or reinsurer that is subject to insolvency risk, which creates an incentive problem known as the judgment proof problem. The corporate manager is assumed to act in the interests of shareholders and so the judgment proof problem yields a conflict of interest between shareholders and other stakeholders. Given the fact that hedging may improve the situation, the analysis addresses what type of hedging tool would be best to use. We show that an indemnity-based security tends to worsen the situation, as it introduces an additional incentive problem. Index-based hedging, on the other hand, under certain conditions turns out to be beneficial and therefore clearly dominates indemnity-based strategies. This result is further supported by showing that for the same strike prices the current shareholder value is greater with the index-based security than the indemnity-based security.alternative risk transfer; insurance; default risk
Constraining the IMF using TeV gamma ray absorption
Gamma rays of ~TeV energies from distant sources suffer attenuation due to
pair production off of ~1 micron EBL photons. We may exploit this process in
order to indirectly measure the EBL and constrain models of galaxy formation.
Here, using semi-analytic models of galaxy formation, we examine how gamma ray
absorption may be used as an indirect probe of the stellar initial mass
function (IMF), although there is a degeneracy with dust modeling. We point out
that with the new generation of gamma ray telescopes including STACEE, MAGIC,
HESS, VERITAS, and Milagro, we should soon possess a wealth of new data and a
new method for probing the nature of the IMF.Comment: contribution to "TeV Astrophysics of Extragalactic Sources" VERITAS
workshop, editors M. Catanese, J. Quinn, T. Weekes; 3 pages 1 figur
From arteries to boreholes: Steady-state response of a poroelastic cylinder to fluid injection
The radially outward flow of fluid into a porous medium occurs in many
practical problems, from transport across vascular walls to the pressurisation
of boreholes. As the driving pressure becomes non-negligible relative to the
stiffness of the solid structure, the poromechanical coupling between the fluid
and the solid has an increasingly strong impact on the flow. For very large
pressures or very soft materials, as is the case for hydraulic fracturing and
arterial flows, this coupling can lead to large deformations and, hence, to
strong deviations from a classical, linear-poroelastic response. Here, we study
this problem by analysing the steady-state response of a poroelastic cylinder
to fluid injection. We consider the qualitative and quantitative impacts of
kinematic and constitutive nonlinearity, highlighting the strong impact of
deformation-dependent permeability. We show that the wall thickness (thick vs.
thin) and the outer boundary condition (free vs. constrained) play a central
role in controlling the mechanics
Impact of pressure dissipation on fluid injection into layered aquifers
Carbon dioxide (CO2) capture and subsurface storage is one method for
reducing anthropogenic CO2 emissions to mitigate climate change. It is well
known that large-scale fluid injection into the subsurface leads to a buildup
in pressure that gradually spreads and dissipates through lateral and vertical
migration of water. This dissipation can have an important feedback on the
shape of the CO2 plume during injection, and the impact of vertical pressure
dissipation, in particular, remains poorly understood. Here, we investigate the
impact of lateral and vertical pressure dissipation on the injection of CO2
into a layered aquifer system. We develop a compressible, two-phase model that
couples pressure dissipation to the propagation of a CO2 gravity current. We
show that our vertically integrated, sharp-interface model is capable of
efficiently and accurately capturing water migration in a layered aquifer
system with an arbitrary number of aquifers. We identify two limiting cases ---
`no leakage' and `strong leakage' --- in which we derive analytical expressions
for the water pressure field for the corresponding single-phase injection
problem. We demonstrate that pressure dissipation acts to suppress the
formation of an advancing CO2 tongue during injection, resulting in a plume
with a reduced lateral extent. The properties of the seals and the number of
aquifers determine the strength of pressure dissipation and subsequent coupling
with the CO2 plume. The impact of pressure dissipation on the shape of the CO2
plume is likely to be important for storage efficiency and security
Detecting the Attenuation of Blazar Gamma-ray Emission by Extragalactic Background Light with GLAST
Gamma rays with energy above 10 GeV interact with optical-UV photons
resulting in pair production. Therefore, a large sample of high redshift
sources of these gamma rays can be used to probe the extragalactic background
starlight (EBL) by examining the redshift dependence of the attenuation of the
flux above 10 GeV. GLAST, the next generation high-energy gamma-ray telescope,
will have the unique capability to detect thousands of gamma-ray blazars to
redshifts of at least z=4, with sufficient angular resolution to allow
identification of a large fraction of their optical counterparts. By combining
established models of the gamma-ray blazar luminosity function, two different
calculations of the high energy gamma-ray opacity due to EBL absorption, and
the expected GLAST instrument performance to produce simulated fluxes and
redshifts for the blazars that GLAST would detect, we demonstrate that these
gamma-ray blazars have the potential to be a highly effective probe of the
optical-UV EBL.Comment: 15 pages, AASTeX, 3 eps figures, accepted for publication in Ap
Fluid-driven deformation of a soft granular material
Compressing a porous, fluid-filled material will drive the interstitial fluid
out of the pore space, as when squeezing water out of a kitchen sponge.
Inversely, injecting fluid into a porous material can deform the solid
structure, as when fracturing a shale for natural gas recovery. These
poromechanical interactions play an important role in geological and biological
systems across a wide range of scales, from the propagation of magma through
the Earth's mantle to the transport of fluid through living cells and tissues.
The theory of poroelasticity has been largely successful in modeling
poromechanical behavior in relatively simple systems, but this continuum theory
is fundamentally limited by our understanding of the pore-scale interactions
between the fluid and the solid, and these problems are notoriously difficult
to study in a laboratory setting. Here, we present a high-resolution
measurement of injection-driven poromechanical deformation in a system with
granular microsctructure: We inject fluid into a dense, confined monolayer of
soft particles and use particle tracking to reveal the dynamics of the
multi-scale deformation field. We find that a continuum model based on
poroelasticity theory captures certain macroscopic features of the deformation,
but the particle-scale deformation field exhibits dramatic departures from
smooth, continuum behavior. We observe particle-scale rearrangement and
hysteresis, as well as petal-like mesoscale structures that are connected to
material failure through spiral shear banding
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