We show that the Truncated Realized Variance (TRV) of a SemiMartingale (SM) converges to zero when observations are contaminated by noise. Under the additive i.i.d. noise assumption, a central limit theorem is also proved. In consequence it is possible to construct a feasible test allowing us to measure, for a given path of a given data generating process at a given observation frequency, the relevance of the noise in the data when we want to estimate the efficient process integrated variance IV. We thus can optimally select the observation frequency at which we can “safely” use TRV. The performance of our test is verified on simulated data. We are especially interested in the application of the test to financial data, and a comparison conducted with Bandi and Russel (2008) and Ait-Sahalia, Mykland and Zhang (2005) mean square error criteria shows that, in order to estimate IV, in many cases we can rely on TRV for lower observation frequencies than previously indicated when using Realized Variance (RV). The advantages of our method are at least two: on the one hand the underlying model for the efficient data generating process is less restrictive in that jumps are allowed (in the form of an Ito SM). On the other hand our criterion is pathwise, rather than based on an average estimation error, allowing for a more precise estimation of IV because the choice of the optimal frequency is based on the observed path. Further analysis on both simulated and empirical financial data is conducted in Lorenzini (2012) [15] and is also still in progress.
{"title":"Measuring the Relevance of the Microstructure Noise in Financial Data","authors":"C. Mancini","doi":"10.2139/ssrn.1961224","DOIUrl":"https://doi.org/10.2139/ssrn.1961224","url":null,"abstract":"We show that the Truncated Realized Variance (TRV) of a SemiMartingale (SM) converges to zero when observations are contaminated by noise. Under the additive i.i.d. noise assumption, a central limit theorem is also proved. In consequence it is possible to construct a feasible test allowing us to measure, for a given path of a given data generating process at a given observation frequency, the relevance of the noise in the data when we want to estimate the efficient process integrated variance IV. We thus can optimally select the observation frequency at which we can “safely” use TRV. The performance of our test is verified on simulated data. We are especially interested in the application of the test to financial data, and a comparison conducted with Bandi and Russel (2008) and Ait-Sahalia, Mykland and Zhang (2005) mean square error criteria shows that, in order to estimate IV, in many cases we can rely on TRV for lower observation frequencies than previously indicated when using Realized Variance (RV). The advantages of our method are at least two: on the one hand the underlying model for the efficient data generating process is less restrictive in that jumps are allowed (in the form of an Ito SM). On the other hand our criterion is pathwise, rather than based on an average estimation error, allowing for a more precise estimation of IV because the choice of the optimal frequency is based on the observed path. Further analysis on both simulated and empirical financial data is conducted in Lorenzini (2012) [15] and is also still in progress.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133385494","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 note addresses the properties of mean-reverting stochastic processes of the Black-Karasinski type with additional stochastic jumps. For these processes, which are well suited for many financial applications such as the modelling of commodity prices and credit spreads, one would usually like to ensure a fixed long-term mean around which the process paths evolve. This paper shows the impact of jumps on the long-term asymptotic behaviour of the Black-Karasinski process and proposes a drift adjustment that ensures the convergence of the process expectation to a fixed long-term mean.
{"title":"Mean-Reverting Jump Diffusion Processes: Drift Adjustment to Preserve a Fixed Long-Term Mean","authors":"Mirela Predescu, S. Wilkens","doi":"10.2139/ssrn.1925110","DOIUrl":"https://doi.org/10.2139/ssrn.1925110","url":null,"abstract":"This note addresses the properties of mean-reverting stochastic processes of the Black-Karasinski type with additional stochastic jumps. For these processes, which are well suited for many financial applications such as the modelling of commodity prices and credit spreads, one would usually like to ensure a fixed long-term mean around which the process paths evolve. This paper shows the impact of jumps on the long-term asymptotic behaviour of the Black-Karasinski process and proposes a drift adjustment that ensures the convergence of the process expectation to a fixed long-term mean.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130466910","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}
Andy Fodor, James S. Doran, James M. Carson, David P. Kirch
While insurers manage underwriting risk with various methods including reinsurance, insurers increasingly manage asset risk with options, futures, and other derivatives. Previous research shows that buyers of portfolio insurance pay considerably for downside protection. We add to this literature by providing the first evidence on the cost of portfolio insurance, the payoff to portfolio insurance, and the relative demand for portfolio insurance across VIX levels. We find that the demand for portfolio insurance is relatively high at low levels of VIX, suggesting purchasers demand more downside protection when this protection is cheap on an absolute basis (but expensive on a relative basis). We also provide the first evidence on the hedging behavior of specific investor classes, and show that the demand for portfolio insurance is driven by retail investors (individuals) who buy costly insurance from institutional investors. Results are consistent with other types of paradoxical insurance-buying behavior.
{"title":"On the Demand for Portfolio Insurance","authors":"Andy Fodor, James S. Doran, James M. Carson, David P. Kirch","doi":"10.1111/rmir.12009","DOIUrl":"https://doi.org/10.1111/rmir.12009","url":null,"abstract":"While insurers manage underwriting risk with various methods including reinsurance, insurers increasingly manage asset risk with options, futures, and other derivatives. Previous research shows that buyers of portfolio insurance pay considerably for downside protection. We add to this literature by providing the first evidence on the cost of portfolio insurance, the payoff to portfolio insurance, and the relative demand for portfolio insurance across VIX levels. We find that the demand for portfolio insurance is relatively high at low levels of VIX, suggesting purchasers demand more downside protection when this protection is cheap on an absolute basis (but expensive on a relative basis). We also provide the first evidence on the hedging behavior of specific investor classes, and show that the demand for portfolio insurance is driven by retail investors (individuals) who buy costly insurance from institutional investors. Results are consistent with other types of paradoxical insurance-buying behavior.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134523996","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 Markowitz mean–variance portfolio optimization theory, researchers have shown that the traditional estimated return greatly overestimates the theoretical optimal return, especially when the dimension to sample size ratio p/n is large. Bai et al. (2009) propose a bootstrap-corrected estimator to correct the overestimation, but there is no closed form for their estimator. To circumvent this limitation, this paper derives explicit formulas for the estimator of the optimal portfolio return. We also prove that our proposed closed-form return estimator is consistent when n→∞ and p/n→y∈(0,1). Our simulation results show that our proposed estimators dramatically outperform traditional estimators for both the optimal return and its corresponding allocation under different values of p/n ratios and different inter-asset correlations ρ, especially when p/n is close to 1. We also find that our proposed estimators perform better than the bootstrap-corrected estimators for both the optimal return and its corresponding allocation. Another advantage of our improved estimation of returns is that we can also obtain an explicit formula for the standard deviation of the improved return estimate and it is smaller than that of the traditional estimate, especially when p/n is large. In addition, we illustrate the applicability of our proposed estimate on the US stock market investment.
{"title":"An Improved Estimation to Make Markowitz's Portfolio Optimization Theory Users Friendly and Estimation Accurate with Application on the US Stock Market Investment","authors":"P. Leung, Hon-Yip Ng, W. Wong","doi":"10.2139/ssrn.1968889","DOIUrl":"https://doi.org/10.2139/ssrn.1968889","url":null,"abstract":"Using the Markowitz mean–variance portfolio optimization theory, researchers have shown that the traditional estimated return greatly overestimates the theoretical optimal return, especially when the dimension to sample size ratio p/n is large. Bai et al. (2009) propose a bootstrap-corrected estimator to correct the overestimation, but there is no closed form for their estimator. To circumvent this limitation, this paper derives explicit formulas for the estimator of the optimal portfolio return. We also prove that our proposed closed-form return estimator is consistent when n→∞ and p/n→y∈(0,1). Our simulation results show that our proposed estimators dramatically outperform traditional estimators for both the optimal return and its corresponding allocation under different values of p/n ratios and different inter-asset correlations ρ, especially when p/n is close to 1. We also find that our proposed estimators perform better than the bootstrap-corrected estimators for both the optimal return and its corresponding allocation. Another advantage of our improved estimation of returns is that we can also obtain an explicit formula for the standard deviation of the improved return estimate and it is smaller than that of the traditional estimate, especially when p/n is large. In addition, we illustrate the applicability of our proposed estimate on the US stock market investment.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123658883","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}
Steven Crawford, Wesley Gray, Bryan R. Johnson, R. Price
We examine a comprehensive set of investment recommendations paired with analyst-specific information from over 1,000 buy-side analysts (predominantly analysts from hedge funds) from the private website SumZero.com. Recommendations from these analysts generate significant returns when the reports are posted to the website. Returns are the most dramatic for contrarian recommendations (i.e., those issued contrary to the sell-side consensus), particularly for buy recommendations. Furthermore, the returns to both buy and sell recommendations drift in the direction of the recommendation. We also explore institutional ownership changes and document a wealth transfer between the broader institutional market and buy-side firms in the sample. Collectively, the evidence suggests buy-side recommendations have investment value. The results also document the importance of new technologies in disseminating information to market participants.
{"title":"The Investment Value of Contrarian Buy-Side Recommendations","authors":"Steven Crawford, Wesley Gray, Bryan R. Johnson, R. Price","doi":"10.2139/ssrn.1971533","DOIUrl":"https://doi.org/10.2139/ssrn.1971533","url":null,"abstract":"We examine a comprehensive set of investment recommendations paired with analyst-specific information from over 1,000 buy-side analysts (predominantly analysts from hedge funds) from the private website SumZero.com. Recommendations from these analysts generate significant returns when the reports are posted to the website. Returns are the most dramatic for contrarian recommendations (i.e., those issued contrary to the sell-side consensus), particularly for buy recommendations. Furthermore, the returns to both buy and sell recommendations drift in the direction of the recommendation. We also explore institutional ownership changes and document a wealth transfer between the broader institutional market and buy-side firms in the sample. Collectively, the evidence suggests buy-side recommendations have investment value. The results also document the importance of new technologies in disseminating information to market participants.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126508508","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 show that a real-time trading strategy which front-runs the anticipated forced sales by mutual funds experiencing extreme capital outflows generates an alpha of 0.5% per month during the 1990–2010 period. The abnormal return stems from selling pressure among stocks that are below the NYSE mean size and cannot be attributed to the arrival of public information. While the largest stocks also exhibit downward price pressure, their prices revert before the front-running strategy can detect it. The duration of the anticipated selling pressure has decreased from about a month in the 1990s to about two weeks in the most recent decade. Our results suggest that publicly available information of fund flows and holdings exposes mutual funds in distress to predatory trading.
{"title":"Front-Running of Mutual Fund Fire-Sales","authors":"T. Dyakov, Marno Verbeek","doi":"10.2139/ssrn.2170660","DOIUrl":"https://doi.org/10.2139/ssrn.2170660","url":null,"abstract":"We show that a real-time trading strategy which front-runs the anticipated forced sales by mutual funds experiencing extreme capital outflows generates an alpha of 0.5% per month during the 1990–2010 period. The abnormal return stems from selling pressure among stocks that are below the NYSE mean size and cannot be attributed to the arrival of public information. While the largest stocks also exhibit downward price pressure, their prices revert before the front-running strategy can detect it. The duration of the anticipated selling pressure has decreased from about a month in the 1990s to about two weeks in the most recent decade. Our results suggest that publicly available information of fund flows and holdings exposes mutual funds in distress to predatory trading.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"69 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128885658","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}
Firm level characteristics explain the cross section of investment returns of industry portfolios that include listed and unlisted firms. Moreover, common asset pricing models explain the cross-sectional variation of characteristic-based investment returns which include listed and unlisted firms. Assuming that managers of unlisted fi rms are less likely to be affected by investor misvaluation and are less likely to overinvest, our results are consistent with a rational interpretation of the role of characteristics. Given a portfolio characteristic, there are no systematic differences in expected investment returns for listed and unlisted fi rms suggesting their cost of equity are unrelated to whether a rm is listed or unlisted.
{"title":"The Cross-Section of Industry Investment Returns","authors":"Ilan Cooper, R. Priestley","doi":"10.2139/ssrn.2023921","DOIUrl":"https://doi.org/10.2139/ssrn.2023921","url":null,"abstract":"Firm level characteristics explain the cross section of investment returns of industry portfolios that include listed and unlisted firms. Moreover, common asset pricing models explain the cross-sectional variation of characteristic-based investment returns which include listed and unlisted firms. Assuming that managers of unlisted fi rms are less likely to be affected by investor misvaluation and are less likely to overinvest, our results are consistent with a rational interpretation of the role of characteristics. Given a portfolio characteristic, there are no systematic differences in expected investment returns for listed and unlisted fi rms suggesting their cost of equity are unrelated to whether a rm is listed or unlisted.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131403963","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.1540-6296.2012.01218.x
Joël Wagner, Alexandra Zemp
In the European insurance industry, regulatory and reporting frameworks are currently subject to far‐reaching reforms. We focus on four of these frameworks, namely the Solvency II framework, insurance guaranty systems, the proposed IFRS 4 Phase II international accounting standards, and Market Consistent Embedded Value reporting. We present these frameworks, analyze them from the insurance company's management, investors, and policyholder perspectives, and compare them. Our analysis implies that the four frameworks need to be considered jointly, due to various interrelations and interactions. We argue that a coordinated introduction will be necessary to ensure that the regulatory burden is reduced and synergies can be utilized in the event of all four frameworks being implemented as planned. Furthermore, we analyze the challenges of a holistic, comprehensive approach to insurance reporting and regulation and its implementation in order to achieve the goals set by the frameworks.
{"title":"Comparison of Stakeholder Perspectives on Current Regulatory and Reporting Reforms","authors":"Joël Wagner, Alexandra Zemp","doi":"10.1111/j.1540-6296.2012.01218.x","DOIUrl":"https://doi.org/10.1111/j.1540-6296.2012.01218.x","url":null,"abstract":"In the European insurance industry, regulatory and reporting frameworks are currently subject to far‐reaching reforms. We focus on four of these frameworks, namely the Solvency II framework, insurance guaranty systems, the proposed IFRS 4 Phase II international accounting standards, and Market Consistent Embedded Value reporting. We present these frameworks, analyze them from the insurance company's management, investors, and policyholder perspectives, and compare them. Our analysis implies that the four frameworks need to be considered jointly, due to various interrelations and interactions. We argue that a coordinated introduction will be necessary to ensure that the regulatory burden is reduced and synergies can be utilized in the event of all four frameworks being implemented as planned. Furthermore, we analyze the challenges of a holistic, comprehensive approach to insurance reporting and regulation and its implementation in order to achieve the goals set by the frameworks.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"9 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":"117246274","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.1540-6296.2012.01216.x
C. Tsai
Estimating the interest rate risk of life insurance reserves is essential for insurers, and surrender options are critical to the estimation. This article advances our understanding of how surrender options affect the durations of reserves. We identify a pattern of the reserve duration with respect to the interest rate that is important in explaining how surrender rate levels and the interest‐rate sensitivity of surrenders affect reserve durations. We further found that the surrender behavior that is more positively related to the interest rate produces larger/smaller effective dollar durations when the interest rate is low/high.
{"title":"The Impacts of Surrender Options on Reserve Durations","authors":"C. Tsai","doi":"10.1111/j.1540-6296.2012.01216.x","DOIUrl":"https://doi.org/10.1111/j.1540-6296.2012.01216.x","url":null,"abstract":"Estimating the interest rate risk of life insurance reserves is essential for insurers, and surrender options are critical to the estimation. This article advances our understanding of how surrender options affect the durations of reserves. We identify a pattern of the reserve duration with respect to the interest rate that is important in explaining how surrender rate levels and the interest‐rate sensitivity of surrenders affect reserve durations. We further found that the surrender behavior that is more positively related to the interest rate produces larger/smaller effective dollar durations when the interest rate is low/high.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"197 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":"127650853","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.1540-6296.2012.01214.x
Li Zhang, Norma L. Nielson
This article examines multiline insurance pricing based on the contingent claim approach in a limited liability and frictional costs environment. Capital allocation is based on the value of the default option, which satisfies the realistic assumption that each distinct line undertakes a pro rata share of deficit caused by insurer insolvency. Premium levels, available assets, and default risk interact with each other and reach equilibrium at the fair premium. The assets available to pay for liabilities are not predetermined or given; instead, the premium income and investment income jointly influence the available assets. The results show that equity allocation does not influence the overall fair premium. For a given expected loss, the premium‐to‐expected‐loss ratio for firms offering multiple lines is higher than that for firms only offering a single line, due to the reduced risk achieved through diversification. Premium‐to‐expected‐loss ratio and equity‐to‐expected‐loss ratio vary across lines. Lines having a higher possibility or claim amount not being paid in full exhibit lower premium‐to‐expected‐loss ratio and higher equity‐to‐expected‐loss ratio. Positive correlation among lines of business results in lower premium‐to‐expected‐loss ratio than when independent losses are assumed. Positive correlation between investment return and losses reduces the insolvency risk and leads to a higher premium‐to‐expected‐loss ratio.
{"title":"Pricing for Multiline Insurer: Frictional Costs, Insolvency, and Asset Allocation","authors":"Li Zhang, Norma L. Nielson","doi":"10.1111/j.1540-6296.2012.01214.x","DOIUrl":"https://doi.org/10.1111/j.1540-6296.2012.01214.x","url":null,"abstract":"This article examines multiline insurance pricing based on the contingent claim approach in a limited liability and frictional costs environment. Capital allocation is based on the value of the default option, which satisfies the realistic assumption that each distinct line undertakes a pro rata share of deficit caused by insurer insolvency. Premium levels, available assets, and default risk interact with each other and reach equilibrium at the fair premium. The assets available to pay for liabilities are not predetermined or given; instead, the premium income and investment income jointly influence the available assets. The results show that equity allocation does not influence the overall fair premium. For a given expected loss, the premium‐to‐expected‐loss ratio for firms offering multiple lines is higher than that for firms only offering a single line, due to the reduced risk achieved through diversification. Premium‐to‐expected‐loss ratio and equity‐to‐expected‐loss ratio vary across lines. Lines having a higher possibility or claim amount not being paid in full exhibit lower premium‐to‐expected‐loss ratio and higher equity‐to‐expected‐loss ratio. Positive correlation among lines of business results in lower premium‐to‐expected‐loss ratio than when independent losses are assumed. Positive correlation between investment return and losses reduces the insolvency risk and leads to a higher premium‐to‐expected‐loss ratio.","PeriodicalId":431629,"journal":{"name":"Econometrics: Applied Econometric Modeling in Financial Economics eJournal","volume":"18 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":"132736208","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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