This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. We find strong ...

Institute of Computational Modeling SB RAS, Academgorodok, Krasnoyarsk, Russia, 660036 e-mail: [email protected], phone +7 3912 495382 Abstract Risk measures are widely used in insurance pricing, portfolio selection, and in decision-making in general. Two prevalent classes of risk measures are expected utility (a dollar transform), and distorted probability (a probability transform). Both appro...

■ Individual bonds can provide certain benefits over funds, and these advantages mostly have to do with a preference for control over security-specific decisions. The cost of these advantages can be thought of as a “control premium” that is reflected in generally higher (or additional) transaction costs, lower liquidity, more limited return opportunities, and higher bond portfolio risk. The con...

I ran Insurance Company intends to raise its financial credit and render enhanced services to the insured and the public. The need to meet financial obligations arising from the claims requires determination of the optimum deposited claims reserve with banks. Therefore, the present research study aimed at finding the loss ratio (incurred losses to premiu...

This paper generalizes the results on optimal reinsurance presented in Centeno and Guerra (2008) to the case of an insurer holding a portfolio of k dependent risks. It is assumed that the number of claims of a risk may depend on the number of claims of the other risks of the portfolio. Our aim is to determine the optimal form of reinsurance for each risk when the cedent seeks to maximize the ad...

Noise is essential for the existence of a liquid market, and if noise traders are not present in the market, the trade volume will drop severely and an important aspect of the market philosophy will be lost. However, these noise traders bring noise to the market, and the existence of noise in prices indicates a temporary deviation in prices from their fundamental values. In particular, high-fre...

This paper presents a dynamic portfolio choice model to analyze the liquidity premium necessary to compensate an investor for the adverse price impact of trading. By calibrating the model to empirically reasonable parameter values, we generate a plausible liquidity premium. Specifically, the premium is an increasing, concave function of price impact. It increases with the investor’s initial wea...

We review one recent approach to the equity premium puzzle. The key elements of this approach are loss aversion and narrow framing, two well-known features of decisionmaking under risk in experimental settings. In equilibrium, models that incorporate these ideas can generate a large equity premium and a low and stable risk-free rate, even when consumption growth is smooth and only weakly correl...

This paper examines the determination of risk premiums in foreign exchange markets. The statistical model is based on a theoretical model of asset pricing, which leads to severe cross-equation constraints. Statistical tests lead to a rejection of these constraints. We examine the robustness of these tests to time variation in parameters and to the presence of heteroskedasticity. We find that th...

In this paper we develop a symbolic technique to obtain asymptotic expressions for ruin probabilities and discounted penalty functions in renewal insurance risk models when the premium income depends on the present surplus of the insurance portfolio. The analysis is based on boundary problems for linear ordinary differential equations with variable coefficients. The algebraic structure of the G...