We show that absence of arbitrage in frictionless markets implies a lower bound on the average of the logarithm of the reciprocal of the stochastic discount factor implicit in asset pricing models. The greatest lower bound for a given asset menu is the average continuously compounded return on its growth-optimal portfolio. We use this bound to evaluate the plausibility of various parametric ass...

In this paper we extend the classical Cramér-Lundberg risk model by including tax payments. The considered tax rule is to pay a certain proportion of the premium income, whenever the portfolio is in a profitable situation. It is shown that the resulting survival probability is a power of the survival probability without tax. Furthermore, an explicit expression for the expected discounted total ...

Both the level and the sequence of investment returns will have a big impact on retirement outcomes. Poor returns during the early years of retirement are bad news. However, the particular withdrawal strategy used affects sequence risk, and an approach where withdrawals are variable and respond to portfolio performance can improve retirement outcomes. I’ll examine the evidence and then use my o...

We study the portfolio decision of a household with limited information-processing capacity in a setting with recursive utility. We find that rational inattention combined with a preference for early resolution of uncertainty leads to a significant drop in the share of portfolios held in risky assets, even when the departure from standard expected utility with rational expectations is small. In...

Risk diversification is the basis of insurance and investment. It is thus crucial to study the effects that could limit it. One of them is the existence of systemic risk that affects all of the policies at the same time. We introduce here a probabilistic approach to examine the consequences of its presence on the risk loading of the premium of a portfolio of insurance policies. This approach co...

Nat Cat risks are not insurable by traditional insurance mainly because of producing highly correlated losses. The source such correlation among buildings a region subject to natural hazard is discussed. A decomposition method proposed split risk into idiosyncratic (and hence insurable) and systematic (carrying the part). It explained that can be transferred capital markets using set parametric...

The premium calculation principle is one of the main objectives of study for actuaries. There seems to be full agreement among the leading theoreticians in the field that the insurance premium should reflect both the expected claims and certain loadings. This is true for policy, risk or portfolio. There are three types of positive loadings: a) a loading to cover commissions, administrative cost...

This paper questions existence of illiquidity premium on 8 Central and South East European stock markets. Using the ILLIQ illiquidity measure proposed by Amihud (2002) we investigate liquidity of each stock. Naïve portfolio diversification is applied in forming liquidity sorted portfolios. These portfolios were formed using daily data in the half-year period and in the second part of analysis b...

the credit portfolio management and the optimal credit portfolio selection are identified as one of the most effective factors in banks’ credit risk. two main strategies in this regard include diversification versus concentration. in this study, at first, the status of diversification of iran’s banking sector is analyzed, then the relationship between diversification of the credit portfolio and...

We decompose time-varying beta for stock into beta for continuous systematic risk and beta for discontinuous systematic risk. Brownian motion is assumed as nature of price movements in our modeling. Our empirical research is based on high-frequency data for stocks from Tehran Stock Exchange. Our market portfolio experiences 136 days out of 243 trading days with jumps which is a considerable rat...