This paper examines the history of mREITs and their broader role in the REIT industry. Additionally, it reviews how mREITs operate, how they are regulated, the risks they face, how they manage these risks, and the dangers they pose for the broader financial system.
{"title":"mREITs and Their Risks","authors":"S. Pellerin, Steven Sabol, J. R. Walter","doi":"10.2139/SSRN.2357070","DOIUrl":"https://doi.org/10.2139/SSRN.2357070","url":null,"abstract":"This paper examines the history of mREITs and their broader role in the REIT industry. Additionally, it reviews how mREITs operate, how they are regulated, the risks they face, how they manage these risks, and the dangers they pose for the broader financial system.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130704123","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article reports the main results of the 2012 Risk Premium Project update, a yearly review of actuarial and finance literature on the theory and empirics of risk assessment for property–casualty insurance. Pricing and modeling insurance risks and methodological advancement in risk valuation were popular fields of research in 2012. Of special note is new work on behavioral pricing and liquidity. Additionally, underwriting cycles attracted some controversy, and emerging risks, such as systemic risk and potential interrelations between insurance and other financial markets, were also areas of intense discussion.
{"title":"Recent Research Developments Affecting Nonlife Insurance — The CAS Risk Premium Project 2012 Update","authors":"C. Biener, M. Eling","doi":"10.1111/rmir.12015","DOIUrl":"https://doi.org/10.1111/rmir.12015","url":null,"abstract":"This article reports the main results of the 2012 Risk Premium Project update, a yearly review of actuarial and finance literature on the theory and empirics of risk assessment for property–casualty insurance. Pricing and modeling insurance risks and methodological advancement in risk valuation were popular fields of research in 2012. Of special note is new work on behavioral pricing and liquidity. Additionally, underwriting cycles attracted some controversy, and emerging risks, such as systemic risk and potential interrelations between insurance and other financial markets, were also areas of intense discussion.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124349909","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the pricing implication of liquidity risks in the liquidity-adjusted capital asset pricing model of Acharya and Pedersen (2005), using multiple liquidity measures and their principal component. While we find that the empirical results are sensitive to the liquidity measure used in the test, we find strong evidence of pricing of liquidity risks when we estimate liquidity risks based on the first principal component across eight measures of liquidity, both in the cross-sectional and factor-model regressions. Our finding implies that the systematic component measured by each liquidity proxy is correlated across measures and the shocks to the systematic and common component of liquidity are an undiversifiable source of risk.
{"title":"Pricing of Liquidity Risks: Evidence from Multiple Liquidity Measures","authors":"Soonho Kim, Kuan-Hui Lee","doi":"10.2139/ssrn.1976223","DOIUrl":"https://doi.org/10.2139/ssrn.1976223","url":null,"abstract":"We investigate the pricing implication of liquidity risks in the liquidity-adjusted capital asset pricing model of Acharya and Pedersen (2005), using multiple liquidity measures and their principal component. While we find that the empirical results are sensitive to the liquidity measure used in the test, we find strong evidence of pricing of liquidity risks when we estimate liquidity risks based on the first principal component across eight measures of liquidity, both in the cross-sectional and factor-model regressions. Our finding implies that the systematic component measured by each liquidity proxy is correlated across measures and the shocks to the systematic and common component of liquidity are an undiversifiable source of risk.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121218482","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We derive no-arbitrage bounds for expected excess returns to generate scenarios used in financial optimization. The bounds allow to distinguish three regions: one where arbitrage opportunities will never exist, a second where arbitrage may be present, and a third, where arbitrage opportunities will always exist. No-arbitrage bounds are derived in closed form for a given covariance matrix using the least possible number of scenarios. The same setting is also used in an algorithm to generate discrete scenarios and trees. Numerical results from solving two-stage asset allocation problems indicate that even for minimal tree size very accurate results can be obtained.
{"title":"No-Arbitrage Bounds for Scenarios and Financial Optimization","authors":"Alois Geyer, M. Hanke, Alex Weissensteiner","doi":"10.2139/ssrn.1927222","DOIUrl":"https://doi.org/10.2139/ssrn.1927222","url":null,"abstract":"We derive no-arbitrage bounds for expected excess returns to generate scenarios used in financial optimization. The bounds allow to distinguish three regions: one where arbitrage opportunities will never exist, a second where arbitrage may be present, and a third, where arbitrage opportunities will always exist. No-arbitrage bounds are derived in closed form for a given covariance matrix using the least possible number of scenarios. The same setting is also used in an algorithm to generate discrete scenarios and trees. Numerical results from solving two-stage asset allocation problems indicate that even for minimal tree size very accurate results can be obtained.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130692817","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2012-09-01DOI: 10.1111/j.1540-6296.2012.01215.x
I. Zilcha, N. Schneier
We present economic data to demonstrate that the (random) out‐of‐pocket health‐related expenses of seniors who face medical problems are significant and increasing over time. This remains the case even when we take into account the availability of supplemental health insurance. We propose to apply a modest part of Social Security benefits, without increasing the total expenses of this system, to provide mandatory supplemental health insurance for all recipients. Using a theoretical framework we demonstrate that introducing such additional role for Social Security makes individuals (ex ante) better off and hence results in a Pareto dominating new regime for Social Security.
{"title":"Out‐Of‐Pocket Health Expenditures: A Suggested Role for Social Security","authors":"I. Zilcha, N. Schneier","doi":"10.1111/j.1540-6296.2012.01215.x","DOIUrl":"https://doi.org/10.1111/j.1540-6296.2012.01215.x","url":null,"abstract":"We present economic data to demonstrate that the (random) out‐of‐pocket health‐related expenses of seniors who face medical problems are significant and increasing over time. This remains the case even when we take into account the availability of supplemental health insurance. We propose to apply a modest part of Social Security benefits, without increasing the total expenses of this system, to provide mandatory supplemental health insurance for all recipients. Using a theoretical framework we demonstrate that introducing such additional role for Social Security makes individuals (ex ante) better off and hence results in a Pareto dominating new regime for Social Security.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115328546","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Extreme value theory is concerned with the study of the asymptotical distribution of extreme events, that is to say events which are rare in frequency and huge with respect to the majority of observations. Statistical methods derived from this theory have been increasingly employed in finance, especially in the context of risk measurement. The aim of the present study is twofold. The first part delivers a critical review of the theoretical underpinnings of extreme value theory. The second part provides a survey of some major applications of extreme value theory to finance, namely its use to test different distributional assumptions for the data, Value-at-Risk and Expected Shortfall calculations, asset allocation under safety-first type constraints and the study of contagion and dependence across markets under stress conditions.
{"title":"Extreme Value Theory for Finance: A Survey","authors":"M. Rocco","doi":"10.2139/ssrn.1998740","DOIUrl":"https://doi.org/10.2139/ssrn.1998740","url":null,"abstract":"Extreme value theory is concerned with the study of the asymptotical distribution of extreme events, that is to say events which are rare in frequency and huge with respect to the majority of observations. Statistical methods derived from this theory have been increasingly employed in finance, especially in the context of risk measurement. The aim of the present study is twofold. The first part delivers a critical review of the theoretical underpinnings of extreme value theory. The second part provides a survey of some major applications of extreme value theory to finance, namely its use to test different distributional assumptions for the data, Value-at-Risk and Expected Shortfall calculations, asset allocation under safety-first type constraints and the study of contagion and dependence across markets under stress conditions.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115835819","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using the Cornish Fisher expansion is a relatively easy and parsimonious way of dealing with non-normality in asset price or return distributions, in such fields as insurance asset liability management or portfolio optimization with assets such as derivatives. It also allows to implement portfolio optimization with a risk measure more sophisticated than variance, such as Value-at-Risk or Conditional Value-at-Risk The use of Cornish Fisher expansion should avoid two pitfalls: (i) exiting the domain of validity of the formula; (ii) confusing the skewness and kurtosis parameters of the formula with the actual skewness and kurtosis of the distribution.This paper provides guidelines for a proper use of the Cornish Fisher expansion.
{"title":"A User’s Guide to the Cornish Fisher Expansion","authors":"Didier Maillard","doi":"10.2139/ssrn.1997178","DOIUrl":"https://doi.org/10.2139/ssrn.1997178","url":null,"abstract":"Using the Cornish Fisher expansion is a relatively easy and parsimonious way of dealing with non-normality in asset price or return distributions, in such fields as insurance asset liability management or portfolio optimization with assets such as derivatives. It also allows to implement portfolio optimization with a risk measure more sophisticated than variance, such as Value-at-Risk or Conditional Value-at-Risk The use of Cornish Fisher expansion should avoid two pitfalls: (i) exiting the domain of validity of the formula; (ii) confusing the skewness and kurtosis parameters of the formula with the actual skewness and kurtosis of the distribution.This paper provides guidelines for a proper use of the Cornish Fisher expansion.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"152 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130964774","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper extends the recursive smooth ambiguity decision model developed in Klibanoff, Marinacci, and Mukerji (2005, 2009) by relaxing the uniformity imposed on higher order acts. This generalization permits a separation of intertemporal substitution, risk attitude, and attitudes towards different sources of uncertainty. Our decision model is suited in situations where subjects may treat several kinds of uncertainty in different manners. We apply our preference specification to a consumption-based asset pricing model with long run risks and assess the impact of ambiguity on asset prices and predictability patterns. We find that modeling attitudes towards uncertainty through high order smooth ambiguity preferences has important implications for asset prices. Our model generates a highly volatile price-dividend ratio and predictability patterns in line with the data.
本文扩展了Klibanoff, Marinacci, and Mukerji(2005, 2009)提出的递归平滑模糊决策模型，放宽了对高阶行为施加的一致性。这种概括允许对跨期替代、风险态度和对不同不确定性来源的态度进行分离。我们的决策模型适用于受试者可能以不同方式处理几种不确定性的情况。我们将偏好规范应用于具有长期风险的基于消费的资产定价模型，并评估模糊性对资产价格和可预测性模式的影响。我们发现，通过高阶平滑模糊偏好对不确定性的建模态度对资产价格具有重要意义。我们的模型产生了一个高度波动的价格股息比和与数据一致的可预测性模式。
{"title":"High Order Smooth Ambiguity Preferences and Asset Prices","authors":"Julian Thimme, Clemens Völkert","doi":"10.2139/ssrn.2021815","DOIUrl":"https://doi.org/10.2139/ssrn.2021815","url":null,"abstract":"This paper extends the recursive smooth ambiguity decision model developed in Klibanoff, Marinacci, and Mukerji (2005, 2009) by relaxing the uniformity imposed on higher order acts. This generalization permits a separation of intertemporal substitution, risk attitude, and attitudes towards different sources of uncertainty. Our decision model is suited in situations where subjects may treat several kinds of uncertainty in different manners. We apply our preference specification to a consumption-based asset pricing model with long run risks and assess the impact of ambiguity on asset prices and predictability patterns. We find that modeling attitudes towards uncertainty through high order smooth ambiguity preferences has important implications for asset prices. Our model generates a highly volatile price-dividend ratio and predictability patterns in line with the data.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"132 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121351483","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Adjusting the correlation matrix plays an important role in risk management as well as option pricing. We usually adjust the correlation matrix by directly changing the correlation coefficient in the correlation matrix. However, there is a chance that the adjusted correlation matrix is not valid. In this paper, we present a new algorithm for adjusting the correlation matrix that maintains its validity. Furthermore, the correlative relationship among the assets that we do not want to adjust will not be affected by the adjustment. Therefore, the solution obtained from our new algorithm is considered to be intuitively valid.
{"title":"An Intuitively Valid Algorithm for Adjusting the Correlation Matrix in Risk Management and Option Pricing","authors":"Kawee Numpacharoen, K. Bunwong","doi":"10.2139/ssrn.1980761","DOIUrl":"https://doi.org/10.2139/ssrn.1980761","url":null,"abstract":"Adjusting the correlation matrix plays an important role in risk management as well as option pricing. We usually adjust the correlation matrix by directly changing the correlation coefficient in the correlation matrix. However, there is a chance that the adjusted correlation matrix is not valid. In this paper, we present a new algorithm for adjusting the correlation matrix that maintains its validity. Furthermore, the correlative relationship among the assets that we do not want to adjust will not be affected by the adjustment. Therefore, the solution obtained from our new algorithm is considered to be intuitively valid.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"108 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128201597","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The US stock market ended a mixed year 2011 on a flat note. The volatile swings during the year were mainly driven by the concerns and efforts to contain the debt crisis in Europe. The paper analyzes the performance of the major stock indices in US market for the year 2011 and compares it with the performance of the major world indices. The paper commences with the review of three main indexes namely Dow Jones, S&P 500 and Nasdaq Composite over the period Jan 2011 to Dec 2011. It also compares the different sectors of US equity market and analyzes the volatility and volume in the market during the same period.
{"title":"Annual Review of US Stock Market - Year 2011","authors":"Radhika Jha","doi":"10.2139/ssrn.1979808","DOIUrl":"https://doi.org/10.2139/ssrn.1979808","url":null,"abstract":"The US stock market ended a mixed year 2011 on a flat note. The volatile swings during the year were mainly driven by the concerns and efforts to contain the debt crisis in Europe. The paper analyzes the performance of the major stock indices in US market for the year 2011 and compares it with the performance of the major world indices. The paper commences with the review of three main indexes namely Dow Jones, S&P 500 and Nasdaq Composite over the period Jan 2011 to Dec 2011. It also compares the different sectors of US equity market and analyzes the volatility and volume in the market during the same period.","PeriodicalId":366327,"journal":{"name":"ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics (Topic)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114874506","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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