This paper models choice under risk, whether such choices are over simple lotteries or over lotteries that arise from a portfolio of endogenously generated shares of assets. Our model satisfies various prudence and risk aversion conditions, is consistent with Allais paradox rankings, and generates various insurance-related results. Within a portfolio framework with compounded reinvestments, our...

Individual shareholders often choose to invest a substantial fraction of their wealth in one firm thereby having operational control of the firm through the voting power attached to the shares. In doing so the shareholder reduces the diversification of their personal investment portfolio. A controlling shareholder can also use leverage to increase their voting power, which further increases the...

Assefiiability management, optimal fund design and optimal portfolio selection have been key issues of interest to the (re)insurance and investment banking communities, respectively, for some years especially in the design of advanced risk-transfer solutions for clients in the Fortune 500 group of companies. AFIR 1996 publications dealing with these topics were, e.g., Optimal Fund Design for In...

This paper establishes an econometric framework to construct a systematic risk factor from textual data, by linking a beta pricing model with a language model based on machine learning techniques. In this framework, the distributions of stock returns and words in associated documents are determined by a common underlying systematic risk factor (text-implied risk). The exposure to the text-impli...

This paper establishes an econometric framework to construct a systematic risk factor from textual data, by linking a beta pricing model with a language model based on machine learning techniques. In this framework, the distributions of stock returns and words in associated documents are determined by a common underlying systematic risk factor (text-implied risk). The exposure to the text-impli...

capital asset pricing, as one of the basic theories in finance and investment area, develop a model for estimation of expected rate of return and equity cost of capital. this model has many applications in the field of finance. one of anomalies in the capital asset pricing model is the value premium that its proponents believe this risk premium is compensation for a risk not mentioned in origin...

Life insurers often claim that the life settlement industry reduces their surrender profits and leads to an adverse shift in their portfolio of insured risks, i.e., bad risks remain in the portfolio instead of surrendering. In this paper, we aim to quantify the effect of altered surrender behavior––subject to the health status of an insured––in a portfolio of life insurance contracts on the sur...

Abstract: An insurance company offers an insurance contract (p, K), consisting of a premium p and a deductible K. In this paper, we consider the problem of choosing the premium optimally as a function of the deductible. The insurance company is facing a market of N customers, each characterized by their personal claim frequency, α, and risk aversion, β. When a customer is offered an insurance c...

It is a common fact that for most classes of general insurance, many possible sources of heterogeneity of risk exist. Premium rates based on information from a heterogeneous portfolio might be quite inadequate. One way of reducing this danger is by grouping policies according to the different levels of the various risk factors involved. Using measure change techniques, we derive recursive filte...

This paper evaluates out-of-sample dynamic portfolio performance to examine the economic value of exploiting time variation in the risk premium and in the volatility of stock returns to a multiperiod investor. We find that ignoring time variation in these return moments leads to significant utility costs. The time-varying risk premium plays a more important role than time-varying volatility in ...