Minimizing Shortfall Risk and Applications to Finance and Insurance Problems

Minimizing Shortfall

The Risk and Rewards of Minimizing Shortfall Probability

SUMMER 1999 M any different investment objectives and criteria have been suggested for choosing investment strategies. In a static setting, Markowitz [1952] suggests the meanvariance approach. Economic theory more formally postulates that an individual investor would choose an investment strategy to maximize expected utility of wealth and or consumption. In other settings, other criteria might ...

Shortfall Minimizing Portfolios

Many institutional and private investors seek for a long run excess return relative to a reference strategy (e.g. money market, bond index, etc.) which they want to attain under a minimal shortfall probability. In this article it is shown that even in the long run in order to attain a substantial excess return a high shortfall probability has to be accepted. In the model the prices of the asset...

Minimizing the Lifetime Shortfall or Shortfall at Death

We find the optimal investment strategy for an individual who seeks to minimize one of four objectives: (1) the probability that his wealth reaches a specified ruin level before death, (2) the probability that his wealth reaches that level at death, (3) the expectation of how low his wealth drops below a specified level before death, and (4) the expectation of how low his wealth drops below a s...

Generalised Lévy Processes and their Applications in Insurance and Finance

For insurance risks, jump processes such as homogeneous/non-homogeneous Poisson process and Cox process have been used . In financial modelling, it has been observed that diffusion models are not robust enough to capture the appearance of jumps in underlying asset prices and interest rates. As a result, generalised Lévy processes, which are simply speaking, the combinations of Poisson process a...