Finance and Insurance Seminar SS 2010
SS 2010
Donnerstag, 15:00 - 16:00, Raum 062
Der Sprecher, das Thema des Vortrags und der Ort werden wöchentlich auf dieser Homepage und in ECON-news bekannt gegeben.
Bei Fragen im Bezug auf das Seminar, kontaktieren Sie bitte unser Seminarkoordinatorin An Chen (an.chen(at)uni-bonn.de).
vorläufiger Zeitplan:
15. April: Frank Seidfried (Universität Kaiserslautern)
“A Stochastic Control Approach to Portfolio Optimization with
Recursive Utility in IncompleteMarkets”
Abstract:
with recursive preferences of Epstein-Zin-type in an incomplete market.
Following a classical dynamic programming approach, we formulate
the associated Hamilton-Jacobi-Bellman equation and provide a
suitable verification theorem. The proof of this verification theoreom is
complicated by the fact that the Epstein-Zin aggregator is non-Lipschitz,
so standard verification results (e.g.,in [Duffie, Epstein 1992]) are not
applicable. We then apply our results to obtain explicit solutions for
certain combinations of risk aversion and elasticity of intertemporal
substitution (EIS) in the stochastic excess return model of [Wachter
2002] and the stochastic volatility models of [Liu 2007] and [Chacko,
Viceira 2005]. Our results complement those of [Schroder, Skiadas
2003], who obtain explicit solutions for unit EIS with a utility gradient
approach. Our contribution is twofold: First, we find explicit solutions for
portfolio optimization problems with recursive preferences and non-unit
EIS. Second, our approach is based on classical stochastic control
methods and we provide a rigorous verification theorem.
22. April: Nicole Branger (Universität Münster)
"Expected Option Returns and the Structure of Jump Risk Premia"
Abstract:volatility and jumps. A comparison with empirically documented returns
shows that the ability of the model to explain these returns can differ
significantly depending on the holding period and depending on
whether we consider call or put options. Furthermore, we show that the
size of the jump risk premium and its decomposition into a premium for
jump intensity risk, jump size risk, and jump variance risk has a
significant impact on expected option returns. In particular, expected
returns on OTM calls can even become negative.
29. April: Zeno Enders (Universität Bonn)
"The Birth and Burst of Asset Price Bubbles"
Abstract:an unknown potential market size and delegation of investment
decisions. In a bubble, the price of an asset rises above its steady-state
value, which must be justified by rational expectations about possible
future price developments. The higher the expected future price
increase, the more likely is the market potential reached, in which case
the bubble will burst. Depending on the interaction of uncertainty about
the market potential, fundamental riskiness of the asset, the
compensation scheme of the fonds manager, and the risk-free interest
rate, we give a condition for whether rational bubbles are possible.
Based on this analysis, several widely-discussed policy measures are
investigated with respect to their effectiveness to prevent bubbles. A
modified Taylor rule,long-term compensation, and capital requirements
can have the desired effect. Caps on bonuses and a Tobin tax can
create or destroy the possibility of bubbles, depending on their
implementation.
6. Mai: Mogens Steffensen (Universität Kopenhagen)
“Some solvable portfolio problems with quadratic and collectiveobjectives”
Abstract:
We present a verification result for a general class of portfolio problems,
where the standard dynamic programming principle does not hold.
Explicit solutions to a series of cases are provided. They include
dynamic mean-standard deviation, endogenous habit formation for
quadratic utility, and group utility. The latter is defined by adding up the
certainty equivalents of the group members, and the problem is solved
for exponential and power utility.
20. Mai: Annarita Bacinello (Universität Trieste)
"Variable annuities: Risk identification and riskassessment"
Abstract:
Life annuities and pension products usually involve a number of
'guarantees', such as, e.g., minimum accumulation rates, minimum
annual payments and minimum total payout. Packaging different
types of guarantees is the feature of so-called Variable Annuities.
Basically, these products are unit-linked investment policies providing
deferred annuity benefits. The guarantees, commonly referred to as
GMxBs (namely, Guaranteed Minimum Benefits of type 'x'), include
minimum benefits both in case of death and in case of survival.
Following a Risk Management-oriented approach, this paper first aims
at singling out all sources of risk affecting Variable Annuities ('risk
identification phase'). Critical aspects arise from the interaction between
financial and demographic issues. In particular, the longevity risk may
have a dramatic impact on the technical equilibrium within a portfolio.
Then, we deal with risk quantification ('risk assessment phase'), mostly
via stochastic simulation of financial and demographic scenarios. Our
main contribution is to present an integrated approach to risks in
Variable Annuity products, so providing a unifying and innovative point of
view.
10. Juni: Sven Balder (Universität Duisburg)
"The too-big-to-fail option"Abstract:
The recent financial crisis has shown that some nancial institutions
are
considered
to be systemically relevant. This implies that governments
are expected
to bail out
distressed institutions. These firms are deemed
"too big to fail". The
costs for an
bail-out can be interpreted as an
insurance to the debt holders.
Therefore regulation
authorities should
ask for a premium for this insurance. The talk
discusses how
this
premium can be calculated. The too-big-to-fail option can be
interpreted
as a
credit default swap (cds). Unfortunately, if financial markets expect
that a financial
institution is too big to fail this will be reflected by a cds
premium
which is too low.
Using the structural model approach it will be
discussed how stock and
equity-option
prices can be used for
calculating the insurance premium. Different
parametric and
non-parametric methods are presented and discussed.
17. Juni: Christian Schlag (Universität Frankfurt)
“Long-Run Risk Models: Stochastic Volatility versus StochasticIntensity”
Abstract:
represent an important class of approaches to explain a number of
classical asset pricing puzzles. In a recent paper Drechsler and Yaron
(2009) extend the LRR model by including jumps in the state variables
and a stochastic long-run mean level for the conditional variance. The
resulting model explains the observed large and positive variance risk
premium as well as performance of this variance risk premium as a
predictor for future excess returns. Furthermore the model is also able
to match the patterns of time variation both in the level and in the
variance of excess returns on dividend claims. In this model the jump
intensity is specified as an affine function of the conditional variance, so
that these two state variables are assumed to be perfectly correlated.
The empirical validity of this assumption is highly questionable, as
shown by Santa-Clara and Yun (2008), who find that the estimated
correlation between the increments of the diffusive volatility and jump
intensity is quite low. This suggests that a model where the stochastic
jump intensity is perfectly correlated with conditional variance is
potentially misspecified.
Our paper investigates the impact of the specification of jump intensities
in LRR models. We introduce an additional, autonomous jump-diffusion
factor into the LRR model of Drechsler and Yaron (2009) and consider
different scenarios with respect to the weight of this additional factor in
the jump intensity dynamics. In this new model we then study asset
pricing moments and predictability characteristics to analyze the impact
of the intensity specification on the overall performance of the LRR
model.
1. Juli: Rudi Zagst (Technische Universität München)
"The Crash-NIG copula model: modeling dependence in creditportfolios through the crisis"
Abstract:
It is well known that the one-factor copula models are very useful for risk
management and measurement applications involving the generation
of scenarios for the complete universe of risk factors and the inclusion
of CDO structures in a portfolio context. For this objective, it is necessary
to have a simple and fast model that is also consistent with the
scenario simulation framework. In this paper we present three
extensions of the NIG one-factor copula model which jointly have not
been considered so far: (i) tranches with dierent maturities modeled in
a consistent way, (ii) a portfolio with dierent rating buckets, relaxing
the assumption of a large homogeneous portfolio, and (iii) dierent
correlation regimes. The regime-switching component of the proposed
Crash-NIG copula model is especially important in view of the current
credit crisis. We also introduce liquidity premiums into the Crash-NIG
copula model and show that the actual credit crisis is substantially
driven by liquidity eects.
8. Juli: Victoria Steblovskaya (Bentley University, Boston, USA)
"Alternative Approach to Optimal Hedging in a Discrete Time
Incomplete Market and Applications to Finance and Insurance"
(Part I)
Abstract:
Over the last decades, a variety of approaches to pricing and hedging
financial derivatives in incomplete markets, both for discrete and
continuous models, have appeared in the literature. A significant
proportion of research constructs self-financing trading strategies that
satisfy both a primary no-arbitrage condition and secondary conditions
on portfolio risk and return. Less prevalent is the study of non-self-
financing trading strategies in similar economic environments.
Within a discrete model that generalizes the Cox-Ross-Rubinstein
binomial model, we build an algorithm that chooses an optimal
non-self-financing trading strategy from the set of admissible (market
calibrated) trading strategies based on risk minimization principles.
Interesting links to a risk-minimization hedging theory developed by H.
Foellmer et al. will be discussed.
Along with theoretical description of our model and algorithm,
encouraging numerical results using real market data will be
presented. Some applications to equity-linked life insurance
products will be discussed.
13. Juli: Victoria Steblovskaya (Bentley University, Boston, USA)
"Alternative Approach to Optimal Hedging in a Discrete Time
Incomplete Market and Applications to Finance and Insurance"
(Part II)
Abstract:
Over the last decades, a variety of approaches to pricing and hedging
financial derivatives in incomplete markets, both for discrete and
continuous models, have appeared in the literature. A significant
proportion of research constructs self-financing trading strategies that
satisfy both a primary no-arbitrage condition and secondary conditions
on portfolio risk and return. Less prevalent is the study of
non-self-financing trading strategies in similar economic environments.
Within a discrete model that generalizes the Cox-Ross-Rubinstein
binomial model, we build an algorithm that chooses an optimal
non-self-financing trading strategy from the set of admissible (market
calibrated) trading strategies based on risk minimization principles.
Interesting links to a risk-minimization hedging theory developed by H.
Foellmer et al. will be discussed.
Along with theoretical description of our model and algorithm,
encouraging numerical results using real market data will be presented.
Some applications to equity-linked life insurance products will be
discussed
15. Juli : Chris Rogers (Universität Cambridge)
"Diverse beliefs"Abstract:
This paper presents a general framework for studying diverse beliefs in
dynamic
economies. Within this general framework, the characterization
of a
central-planner general equilbrium turns out to be very easy to
derive,
and leads to a range of interesting applications. We show how
for an economy with log
investors holding diverse beliefs, rational
overconfidence is to be
expected; volume-of-trade effects are
effectively modelled; a range
of sample moments from macroeconomic
growth data can be closely
approximated; and the Keynesian `beauty
contest' can be modelled and
analysed. We remark that models where
agents receive private
information can formally be considered as
models of diverse beliefs.
