OPTIMAL DIVIDEND-PENALTY STRATEGIES FOR INSURANCE RISK MODELS WITH SURPLUS-DEPENDENT PREMIUMS

This paper concerns an optimal dividend-penalty problem for the risk models with surplus-dependent premiums.The objective is to maximize the difference of the expected cumulative discounted dividend payments received until the moment of ruin and a discounted penalty payment taken at the moment of ruin.Since the value function may be not smooth enough to be the classical solution of the HJB equation,the viscosity solution is involved.The optimal value function can be characterized as the smallest viscosity supersolution of the HJB equation and the optimal dividend-penalty strategy has a band structure.Finally,some numerical examples with gamma distribution for the claims are analyzed.

Risk Measure and Premium Distribution on Catastrophe Reinsurance

In this paper, we propose a new risk measure which is based on the Or- licz premium principle to characterize catastrophe risk premium. The intention is to develop a formulation strategy for Catastrophe Fund. The logarithm equivalent form of reinsurance premium is regarded as the retention of reinsurer, and the differential earnings between the reinsurance premium and the reinsurer＇s retention is accumu- lated as a part of Catastrophe Fund. We demonstrate that the aforementioned risk measure has some good properties, which are further confirmed by numerical simu- lations in R environment.

Volatility Forecasting and Volatility Risk Premium

Volatility is an important variable in the financial market. We propose a model-free implied volatility method to measure the volatility and test the volatility risk premium. The model-free implied volatility does not depend on the option pricing model, and extracts information from all the option contracts. We provide empirical evidence from the S & P 500 index option that model-free implied volatility is more accurate to forecast the future volatility and the volatility risk premium does not exist.

Review of Equity Risk Premium Puzzle

This paper comprehensively reviews the mainly famous and important literature about equity risk premium(ERP)puzzle.From the long term perspective,most markets show the equity yields surprisingly high return,and the discrepancy between the return of equity and risk free rate cannot be explained by any classical equilibrium models.The paper is divided into five parts.The first three parts review vast literature about the discovery and development of ERP puzzle.Most literature conducted on the development of quantitative model and qualitative theories briefly point out their failures of explaining ERP puzzle.The fourthpart shows the empirical studies about ERP puzzle among international countries and the robustness of testing methods.The last partis the brief conclusion of the paper and the prospectsof ERP puzzle.

Understanding Dependent Competing Risks： A Simulation Study to Illustrate the Relationship Between Cause-Specific Hazard and Marginal Hazard

In the analysis of competing risk data, the observed effect of a covariate can be obtained via a Fine and Gray sub-distribution hazard ratio. Sometimes, it is also desirable to obtain the virtual effect of a covariate as if the competing risks were non-existent. Under the latent failure time scenario, when the event of interest and the competing risk event are independent, the cause-specific hazard ratio obtained from the Cox model where the competing events are censored represents the ratio of the marginal hazards and can be interpreted as the virtual effect of the covariate. However, when the two events are not independent, the cause-specific hazard ratio is not the ratio of the marginal hazards as the ratio depends not only on the marginal hazards but also on the correlation between the competing risk and the event of interest. Using simulation, we investigated the degree to which the cause-specific hazard ratio changes relative to the marginal hazard with this correlation. It was found that the discrepancy between the cause-specific hazard ratio and the theoretical marginal hazard ratio increased as the proportion of competing risk events and the correlation between the events increased （〉0.2）. Depending on the direction of the correlation, the cause-specific hazard ratio can over- or under-estimate the marginal hazard ratio. Using real-life datasets, we show how these results can be used to make inferences on the virtual effects.

Risk Premiums and Financial Stability

The collective revelation of credit institutions as regards the imminence of specific risks materialising, which often follows long periods of underestimating probable losses, can trigger a broad-based financial deleveraging via an overly high upsurge in banks＇ risk premiums vis-a-vis the dynamics of fundamentals underlying loan repayment capability. In this context, this paper seeks to investigate the banking sector＇s internal mechanisms that might bring about a negative spiral of credit risk by building a model for the interaction between the increase of the risk premium and that of net interest income and provisioning rate. Statistical results confirm that a higher risk premium is one of the major determinants of credit default in Romania and its excessive widening could affect financial stability in Romania.

Crop Insurance, Premium Subsidy and Agricultural Output

This paper studied the effects of crop insurance on agricultural output with an economic growth model. Based on Ramsey-Cass-Koopmans （RCK） model, a basic model of agriculture economic growth was developed. Extending the basic model to incorporate uncertainty and insurance mechanism, a risk model and a risk-insurance model were built to study the inlfuences of risk and crop insurance on agricultural output. Compared with the steady states of the three models, the following results are achieved：（i） agricultural output decreases if we introduce uncertainty into the risk-free model;（ii） crop insurance promotes agriculture economic growth if insurance mechanism is introduced into the risk model;（iii） premium subsidy constantly improves agricultural output. Our contribution is that we studied the effects of crop insurance and premium subsidy from the perspective of economic growth in a dynamic framework, and proved the output promotion of crop insurance theoretically.

Price distortions and municipal bonds premiums:evidence from Switzerland

This study examines the pricing of municipal bonds before and after a currency shock in Switzerland.Two approaches are used to decompose the municipal to treasuries bond spreads into liquidity,maturity,and default risk premiums.The first approach is the model of the cross-sectional instrumental variables,and the second approach is the model of the instrumental variables with panel data.This study examines the composition of spreads for both approaches,in three scenarios:before,throughout,and after the currency shock.The study performed Durbin-Wu-Hausman tests for each decisive model to verify endogeneity issues,including the Lagrangian Multiplier test,the Cragg-Donald Wald F statistic to confirm the relationship of instrumental and endogenous variables,and the structural break test(Bai-Perron test)to determine the existence of structural breaks in bond distortions.This study finds that the currency price distortions of the Swiss franc in January 2015 made long-run changes in the composition of the municipal bond spreads.This research contributes to the understanding of municipal bond pricing by showing that default risk accounts for a large portion of the municipal bond spread,while maturity risk plays a lesser role.According to our empirical findings,unexpected large currency price shocks may have long-term implications on the municipal bond spreads.

Dosimetric benefit to organs at risk following margin reductions in nasopharyngeal carcinoma treated with intensity-modulated radiation therapy

Introduction:It is important to decrease the radiation exposure of normal tissue in intensity-modulated radiation therapy(IMRT).Minimizing planning target volume(PTV) margins with more precise target localization techniques can achieve this goal.This study aimed to quantify the extent to which organs at risk(OARs) are spared when using reduced margins in the treatment of nasopharyngeal carcinoma(NPC).Methods:Two IMRT plans were regenerated for 40 patients with NPC based on two PTV margins,which were reduced or unchanged following cone beam computed tomography online correction.The reduced-margin plan was optimized based on maximal dose reduction to OARs without compromising target coverage.Dosimetric comparisons were evaluated in terms of target coverage and OAR sparing.Results:Improvements in target coverage occurred with margin reduction,and significant improvements in dosimetric parameters were observed for all OARs(P<0.05) except for the right optic nerve,chiasm,and lens.Doses to OARs decreased at a rate of 1.5%to 7.7%.Sparing of the left parotid and right parotid,where the mean dose(D_(mean)) decreased at a rate of 7.1%and 7.7%,respectively,was greater than the sparing of other OARs.Conclusions:Significant improvements in OAR sparing were observed with margin reduction,in addition to improvement in target coverage.The parotids benefited most from the online imaging-guided approach.

Design Tide Hydrograph with A Given Risk Threshold by A Copula-Based Multivariate Method

This paper describes the development of a T-year design tide hydrograph （DTH）. A core innovation is that the proposed technique uses the design risk threshold and copula-based conditional risk probability to analyze the optimal combination of high waters and low waters of the DTH. A brief description of the method is presented. The in situ semi-diurnal tide data at the coast of Jiangsu Province in China are analyzed. Marginal distributions for high waters and low waters of tides are examined. Furthermore, the joint distributions, condition risk probabilities and risk thresholds of high waters and low waters are presented. Results of the DTH from the proposed method are compared with those from the traditional same-multiple enlarging design approach. It is demonstrated that the proposed method is preferable.

Influence of Flexible Crop Yield Distribution on Crop Insurance Premium Rate——A Case Study on Cotton Insurance in Three Areas of Xinjiang

Based on theoretical analysis of crop risk and premium rate setting,we take the case of premium rate setting of insurance on cotton yield in Shache County,Shaya County and Aksu City of Xinjiang.Using parametric methods and insurance actuarial technique,we select the optimal model for risk fitting of cotton yield in three areas;compare the premium rate calculated accurately under four risk distribution assumptions of cotton yield,and the rational premium rate,to analyze the impact of risk distribution of crop yield on premium rate setting.The empirical results show that the Logistic distribution is the optimal distribution for risk fitting of cotton yield in three areas;the rational net premium rate of cotton insurance in three areas is 7.62%,6.32% and 4.96%,respectively;there are errors in premium rate setting under assumptions of normal distribution,normalized skew distribution and Weibull distribution,ranging from 0.2 percentage points to 8 percentage points.Thus,it indicates that the selection of risk distribution model of yield directly affects the accuracy of premium rate setting of crops,and the key to accurate premium rate setting of crops lies in correct selection of risk distribution model of yield.

Claim Sizes-Based Perturbed Risk Model with the Dependence Structure

In this paper, we focus on the perturbed risk model with dependent relation and consider the relevance from two aspects. For one side, we use copula function to model the structure of the claim size and interclaim time, and on the other side, we establish the change of premium rat depending on the random thresholds. At last, we obtain the Integro-differential equations and its Laplace transforms of the Gerber-Shiu functions for the new risk model.

Levels of Genotoxic and Carcinogenic Ingredients in Plant Food Supplements and Associated Risk Assessment

The present study describes the selection, analysis and risk assessment of genotoxic and carcinogenic ingredients of botanicals and botanical preparations which can be found in food and plant food supplements (PFS). First an inventory was made of botanical ingredients that are of possible concern for human health because of their genotoxic and/or carcinogenic properties. In total, 30 botanical ingredients were selected and subsequently judged for their actual genotoxic and/or carcinogenic potential. Among the 30 compounds considered, 18 compounds were judged to be both genotoxic and carcinogenic. Interestingly, the majority of these compounds belong to the group of alkenylbenzenes or unsaturated pyrrolizidine alkaloids. Subsequently, based on available carcinogenicity data and estimated daily human exposure that was determined focusing on the intake from PFS, the Margin of Exposure (MOE) was calculated for the alkenylbenzenes estragole, methyleugenol, safrole and β-asarone. Calculating the MOEs for intake estimates of these alkenylbenzenes from PFS resulted in MOE values that were generally lower than 10,000 and often lower than 100. In some cases the MOE was even below 10 meaning that the estimated daily intake is in the range of dose levels causing malignant tumors in experimental animals. This result indicates that the use of PFS containing the genotoxic carcinogens estragole, methyleugenol, safrole or β-asarone might raise a potential concern for human health and would be of high priority for risk management.

Insurance ratemaking method for risk of construction diversion project

Based on analyzing risk factors of diversion project,synthetic risk rate and engineering insurance period,the frequency and distribution law of loss are researched on the grounds that foundation pit is submerged after diversion project ceases to be effective.And then,the standpoint that these total loss is subject to non-homogeneous compound Poisson processes is put forward.Furthermore,the collective risk model of the total loss about engineering insurance is established on the basis of construction diversion project risk.Ultimately,insurance ratemaking method for construction engineering risk and its mathematical expression are presented,which provides theoretical method for the insurance ratemaking of hydropower engineering to some extent.

The Information Risk in the Latest Crisis： A Driver or a Driven Factor for Global Financial Markets Equilibrium？

The latest financial crisis has been impressive for strength, impact, duration, and reduced efficacy of the economic and financial policies adopted by the authorities. We use an original information risk model to contribute to the analysis of the crisis and to suggest some approaches for a possible early diagnosis. Using data referred to the three main financial markets and comparing the latest crisis with the previous one and with long-term quantitative evidence, we find out that the 2007-2009 crisis was very different in the information risk quality. That gap affected the market risk aversion and its equilibrium, reducing the efficacy of the authorities＇ intervention tools mainly based on payoff risk control and efficient market restoration. Since information risk is an endogenous element of the market dynamics that can be independent form contingent levels of market efficiency. Drivers of information risk in the European Markets differed strongly from the US and Japanese ones; that is why some global decisions had low impact while opportunities of local intervention were missed.

Managing Interest Rate Risk： An Evaluation of Indian Banks

Interest rate risk represents one of the key forms of financial risk faced by banks. It has given rise to an extensive body of research, .mainly focused on the estimation of sensitivity of bank stock returns to changes in interest rates. However, the analysis of the sources of bank interest rate risk has received much less attention in the literature. It is essential that banks have to monitor, maintain, and manage their assets and liabilities portfolios in a systematic manner taking into account the various risks involved in these areas. Balance sheet risk of a bank can be categorized into two major types of significant risks, which are liquidity risk and interest rate risk （IRR）. IRR is the risk to earning of capital arising from movement of interest rates. The need to manage IRR in Indian banks arises from movement of interest rates. The areas not much considered in the earlier research work are to manage IRR which influences critically the overall profitability of banks. The study was taken with an objective of analyzing the determinants of IRR and examining the strategy to manage such exposures testing the banks long run sustainability. The study had chosen 45 banks and collected secondary data for the financial year 2007 to 2012 to do the analysis of IRR management. The findings of the study were to suggest the ways to minimize the IRR and control its effect on the banks profit. The other findings were to test impact of IRR on the sustainability of the bank.

Quantitative Structural Models to Assess Credit Risk on Individuals

Default Probabilities quantitatively measures the credit risk that a borrower will be unable or unwilling to repay its debt. An accurate model to estimate, as a function of time, these default probabilities is of crucial importance in the credit derivatives market. In this work, we adapt Merton’s [1] original works on credit risk, consumption and portfolio rules to model an individual wealth scenario, and apply it to compute this individual default probabilities. Using our model, we also compute the time depending individual default intensities, recovery rates, hazard rate and risk premiums. Hence, as a straight-forward application, our model can be used as novel way to measure the credit risk of individuals.

A Framework for Modern Risk-Informed Root Cause Analysis Process

The paper discusses the framework for a risk-informed root cause analysis process.Such process enables scaling of the analysis performed based on the risk associated with the undesired event or condition,thereby creating tiers of analysis where the greater the risk,the more sophisticated the analysis.In a risk-informed root cause analysis process,a situation is normally not analyzed at a level less than what actually occurred.However,a situation may be investigated as though the consequence were greater than actually happened,especially if only slight differences in circumstances could result in a significantly higher consequence.While operational events or safety issues are normally expected to result only with negligible or marginal actual consequences,many of those would actually have certain potential to develop or propagate into catastrophic events.This potential can be expressed qualitatively or quantitatively.Risk-informing of root cause analysis relies on mapping the event or safety issue into a risk matrix which,traditionally,is a two-dimensional probability-consequence matrix.A new concept employed in the risk matrix for root cause analysis is that,while the probability reflects the observed or expected range of values(retaining,thus,its“traditional”meaning),the consequence reflects not only the observed or materialized impact(such as failure of equipment)but,also,its potential to propagate or develop into highly undesirable final state.The paper presents main elements of risk-informed root cause analysis process and discusses qualitative and quantitative aspects and approaches to determination of risk significance of operational events or safety issues.

Legal Risks and Precautions of Margin Pledge

The margin of credit business in commercial bank has the problems if legal nature identification and juridical practice has identical comprehension on margin, and that the non-standard financial source and operations of margin makes legal risks. Therefore, the prevention and control measures should be taken for the open and accounting of margin account, drawdown of margin, maintenance of account information, and freezing and deduction of margin of competent organs.

Pareto-Optimal Reinsurance Based on TVaR Premium Principle and Vajda Condition

Reinsurance is an effective risk management tool for insurers to stabilize their profitability. In a typical reinsurance treaty, an insurer cedes part of the loss to a reinsurer. As the insurer faces an increasing number of total losses in the insurance market, the insurer might expect the reinsurer to bear an increasing proportion of the total loss, that is the insurer might expect the reinsurer to pay an increasing proportion of the total claim amount when he faces an increasing number of total claims in the insurance market. Motivated by this, we study the optimal reinsurance problem under the Vajda condition. To prevent moral hazard and reflect the spirit of reinsurance, we assume that the retained loss function is increasing and the ceded loss function satisfies the Vajda condition. We derive the explicit expression of the optimal reinsurance under the TVaR risk measure and TVaR premium principle from the perspective of both an insurer and a reinsurer. Our results show that the explicit expression of the optimal reinsurance is in the form of two or three interconnected line segments. Under an additional mild constraint, we get the optimal parameters and find the optimal reinsurance strategy is full reinsurance, no reinsurance, stop loss reinsurance, or quota-share reinsurance. Finally, we gave an example to analyze the impact of the weighting factor on optimal reinsurance.