Pub Date : 2024-09-06DOI: 10.1007/s10203-024-00475-9
Marina Santacroce, Barbara Trivellato
We consider the reinsurance-investment problem under the mean variance criterion in a dynamic contagion model that takes into account self and externally excited claim clustering effects. We find explicit time-consistent reinsurance-investment strategies for a generalized proportional contract in which only losses above a certain level are reinsured. This greater flexibility in the contract mitigates the possible drawback of the primary insurer ceding too much at the expense of profitability, while still ensuring that the higher risks are shared with the reinsurance counterparty.
{"title":"On mean-variance optimal reinsurance-investment strategies in dynamic contagion claims models","authors":"Marina Santacroce, Barbara Trivellato","doi":"10.1007/s10203-024-00475-9","DOIUrl":"https://doi.org/10.1007/s10203-024-00475-9","url":null,"abstract":"<p>We consider the reinsurance-investment problem under the mean variance criterion in a dynamic contagion model that takes into account self and externally excited claim clustering effects. We find explicit time-consistent reinsurance-investment strategies for a generalized proportional contract in which only losses above a certain level are reinsured. This greater flexibility in the contract mitigates the possible drawback of the primary insurer ceding too much at the expense of profitability, while still ensuring that the higher risks are shared with the reinsurance counterparty.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-09-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142182820","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 : 2024-09-04DOI: 10.1007/s10203-024-00476-8
Annamaria Olivieri, Daniela Tabakova
Special-rate life annuities offer customized annuity rates, based on the lifestyle or health status of the individual. Their main purpose is to encourage the annuity demand, which is still underdeveloped in many markets; as better annuity rates are quoted for individuals showing a higher mortality profile, the number of individuals attracted by life annuities could increase. Providers should then gain larger pool sizes; however, this is possibly matched by a greater heterogeneity of the pool, due to several risk classes defined by the annuity design. Heterogeneity emerges not only in terms of different life expectancies, but also in respect of the dispersion of the lifetime distribution; indeed, situations resulting in a lower life expectancy also show greater variability of the lifetime. As it is well-known, pooling effects are reinforced by the pool size, while they are weakened by its heterogeneity, with a possibly unclear impact on the overall longevity risk to which the provider is exposed. In this paper we investigate the longevity risk profile of an annuity pool consisting of several risk classes. We consider both the idiosyncratic and aggregate components of the risk, by modelling the random number of deaths and assuming a stochastic mortality dynamics. The heterogeneity of risk classes is represented alternatively in a deterministic and stochastic setting. Our conclusions are in line with similar findings discussed in the literature, but obtained in a deterministic framework. Results suggest that the longevity risk profile of the provider is not significantly undermined by a greater pool heterogeneity, with a prevalence of the aggregate component whatever the pool composition.
{"title":"Stochastic assessment of special-rate life annuities","authors":"Annamaria Olivieri, Daniela Tabakova","doi":"10.1007/s10203-024-00476-8","DOIUrl":"https://doi.org/10.1007/s10203-024-00476-8","url":null,"abstract":"<p>Special-rate life annuities offer customized annuity rates, based on the lifestyle or health status of the individual. Their main purpose is to encourage the annuity demand, which is still underdeveloped in many markets; as better annuity rates are quoted for individuals showing a higher mortality profile, the number of individuals attracted by life annuities could increase. Providers should then gain larger pool sizes; however, this is possibly matched by a greater heterogeneity of the pool, due to several risk classes defined by the annuity design. Heterogeneity emerges not only in terms of different life expectancies, but also in respect of the dispersion of the lifetime distribution; indeed, situations resulting in a lower life expectancy also show greater variability of the lifetime. As it is well-known, pooling effects are reinforced by the pool size, while they are weakened by its heterogeneity, with a possibly unclear impact on the overall longevity risk to which the provider is exposed. In this paper we investigate the longevity risk profile of an annuity pool consisting of several risk classes. We consider both the idiosyncratic and aggregate components of the risk, by modelling the random number of deaths and assuming a stochastic mortality dynamics. The heterogeneity of risk classes is represented alternatively in a deterministic and stochastic setting. Our conclusions are in line with similar findings discussed in the literature, but obtained in a deterministic framework. Results suggest that the longevity risk profile of the provider is not significantly undermined by a greater pool heterogeneity, with a prevalence of the aggregate component whatever the pool composition.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142182821","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 : 2024-08-30DOI: 10.1007/s10203-024-00477-7
Andrea Cinfrignini, Davide Petturiti, Gabriele Stabile
We study a single period newsvendor problem under ambiguity in the presence of a discrete random demand. Ambiguity is introduced in the model by (epsilon )-contaminating the newsvendor’s prior probability measure with respect to two suitable classes of probability measures, assuring that the lower expected demand and the upper expected demand are both equal to the prior expected demand. Assuming that the newsvendor has a pessimistic attitude towards ambiguity, we characterize the order quantity that either maximizes the lower expected profit or minimizes the upper expected loss. Since the two contamination classes are cores of two distinct belief functions, we show that the maximin and minimax problems translate in the maximization and minimization of two distinct Choquet integrals.
{"title":"Newsvendor problem with discrete demand and constrained first moment under ambiguity","authors":"Andrea Cinfrignini, Davide Petturiti, Gabriele Stabile","doi":"10.1007/s10203-024-00477-7","DOIUrl":"https://doi.org/10.1007/s10203-024-00477-7","url":null,"abstract":"<p>We study a single period newsvendor problem under ambiguity in the presence of a discrete random demand. Ambiguity is introduced in the model by <span>(epsilon )</span>-contaminating the newsvendor’s prior probability measure with respect to two suitable classes of probability measures, assuring that the lower expected demand and the upper expected demand are both equal to the prior expected demand. Assuming that the newsvendor has a pessimistic attitude towards ambiguity, we characterize the order quantity that either maximizes the lower expected profit or minimizes the upper expected loss. Since the two contamination classes are cores of two distinct belief functions, we show that the maximin and minimax problems translate in the maximization and minimization of two distinct Choquet integrals.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142182822","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 : 2024-08-09DOI: 10.1007/s10203-024-00473-x
Paola Modesti, Lorenzo Peccati
{"title":"Erio Castagnoli: scientist, teacher, mentor and friend","authors":"Paola Modesti, Lorenzo Peccati","doi":"10.1007/s10203-024-00473-x","DOIUrl":"https://doi.org/10.1007/s10203-024-00473-x","url":null,"abstract":"","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.4,"publicationDate":"2024-08-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141923454","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 : 2024-08-09DOI: 10.1007/s10203-024-00464-y
Sören Christensen, Ernesto Mordecki, Facundo Oliú
In a probabilistic mean-field game driven by a linear diffusion an individual player aims to minimize an ergodic long-run cost by controlling the diffusion through a pair of –increasing and decreasing– càdlàg processes, while he is interacting with an aggregate of players through the expectation of a similar diffusion controlled by another pair of càdlàg processes. In order to find equilibrium points in this game, we first consider the control problem, in which the individual player has no interaction with the aggregate of players. In this case, we prove that the best policy is to reflect the diffusion process within two thresholds. Based on these results, we obtain criteria for the existence of equilibrium points in the mean-field game in the case when the controls of the aggregate of players are of reflection type, and give a pair of nonlinear equations to find these equilibrium points. In addition, we present an approximation result for nash equilibria of erdogic games with finitely many players to the mean-field game equilibria considered above when the number of players tends to infinity. These results are illustrated by several examples where the existence and uniqueness of the equilibrium points depend on the coefficients of the underlying diffusion.
{"title":"Two sided ergodic singular control and mean-field game for diffusions","authors":"Sören Christensen, Ernesto Mordecki, Facundo Oliú","doi":"10.1007/s10203-024-00464-y","DOIUrl":"https://doi.org/10.1007/s10203-024-00464-y","url":null,"abstract":"<p>In a probabilistic mean-field game driven by a linear diffusion an individual player aims to minimize an ergodic long-run cost by controlling the diffusion through a pair of –increasing and decreasing– càdlàg processes, while he is interacting with an aggregate of players through the expectation of a similar diffusion controlled by another pair of càdlàg processes. In order to find equilibrium points in this game, we first consider the control problem, in which the individual player has no interaction with the aggregate of players. In this case, we prove that the best policy is to reflect the diffusion process within two thresholds. Based on these results, we obtain criteria for the existence of equilibrium points in the mean-field game in the case when the controls of the aggregate of players are of reflection type, and give a pair of nonlinear equations to find these equilibrium points. In addition, we present an approximation result for nash equilibria of erdogic games with finitely many players to the mean-field game equilibria considered above when the number of players tends to infinity. These results are illustrated by several examples where the existence and uniqueness of the equilibrium points depend on the coefficients of the underlying diffusion.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141941609","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 : 2024-08-07DOI: 10.1007/s10203-024-00474-w
Marzia De Donno, Mario Menegatti
This paper studies the linkages between different aspects of preferences in the presence of risk increases of different degrees in the variance of consumption. We find that the effects on expected utility of risk increases in variance of consecutive degrees are in opposite directions. Applying this result to saving choice when either labour income or the interest rate is random, we obtain that the effects on the optimal level of saving of risk increases in variance of subsequent degrees are in opposite directions. Lastly, similar results are obtained for risk increases in the variance of the variance of consumption.
{"title":"Preferences over risk changes in variance","authors":"Marzia De Donno, Mario Menegatti","doi":"10.1007/s10203-024-00474-w","DOIUrl":"https://doi.org/10.1007/s10203-024-00474-w","url":null,"abstract":"<p>This paper studies the linkages between different aspects of preferences in the presence of risk increases of different degrees in the variance of consumption. We find that the effects on expected utility of risk increases in variance of consecutive degrees are in opposite directions. Applying this result to saving choice when either labour income or the interest rate is random, we obtain that the effects on the optimal level of saving of risk increases in variance of subsequent degrees are in opposite directions. Lastly, similar results are obtained for risk increases in the variance of the variance of consumption.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141941612","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 : 2024-08-07DOI: 10.1007/s10203-024-00471-z
Paola Modesti
This piece in the Milestones series is dedicated to the paper “Specimen Theoriae Novae de Mensura Sortis ” by Daniel Bernoulli, published in 1738 on the Commentarii Academiae Scientiarum ImperialisPetropolitanae.
里程碑》系列中的这篇文章献给丹尼尔-伯努利(Daniel Bernoulli)的论文 "Specimen Theoriae Novae de Mensura Sortis",该论文发表于 1738 年的 Commentarii Academiae Scientiarum Imperialis Petropolitanae 上。
{"title":"On Specimen Theoriae Novae de Mensura Sortis of Daniel Bernoulli","authors":"Paola Modesti","doi":"10.1007/s10203-024-00471-z","DOIUrl":"https://doi.org/10.1007/s10203-024-00471-z","url":null,"abstract":"<p>This piece in the <i>Milestones</i> series is dedicated to the paper “<i>Specimen Theoriae Novae de Mensura Sortis</i> ” by Daniel Bernoulli, published in 1738 on the<i> Commentarii Academiae Scientiarum Imperialis</i> <i>Petropolitanae.</i></p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141941611","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 : 2024-08-06DOI: 10.1007/s10203-024-00472-y
Ludovic Goudenège, Andrea Molent, Antonino Zanette
In this article, we introduce an algorithm called Backward Hedging, designed for hedging European and American options while considering transaction costs. The optimal strategy is determined by minimizing an appropriate loss function, which is based on either a risk measure or the mean squared error of the hedging strategy at maturity. Specifically, the algorithm moves backward in time, determining, for each time-step and different market states, the optimal hedging strategy that minimizes the loss function at the time the option is exercised, by assuming that the strategy used in the future for hedging the liability is the one determined at the previous steps of the algorithm. The proposed approach only employs classic techniques, such as an optimization algorithm, Monte Carlo simulation, and interpolation on a grid. Above all, our choice of a backward iterating approach addresses the issue of time-inconsistency inherent in many traditional risk measures, compelling the optimal strategy to maintain consistency over time, even though the original problem might not inherently support such consistency. Comparisons with the Deep Hedging algorithm in various numerical experiments showcase the efficiency and accuracy of the proposed method.
{"title":"Backward hedging for American options with transaction costs","authors":"Ludovic Goudenège, Andrea Molent, Antonino Zanette","doi":"10.1007/s10203-024-00472-y","DOIUrl":"https://doi.org/10.1007/s10203-024-00472-y","url":null,"abstract":"<p>In this article, we introduce an algorithm called Backward Hedging, designed for hedging European and American options while considering transaction costs. The optimal strategy is determined by minimizing an appropriate loss function, which is based on either a risk measure or the mean squared error of the hedging strategy at maturity. Specifically, the algorithm moves backward in time, determining, for each time-step and different market states, the optimal hedging strategy that minimizes the loss function at the time the option is exercised, by assuming that the strategy used in the future for hedging the liability is the one determined at the previous steps of the algorithm. The proposed approach only employs classic techniques, such as an optimization algorithm, Monte Carlo simulation, and interpolation on a grid. Above all, our choice of a backward iterating approach addresses the issue of time-inconsistency inherent in many traditional risk measures, compelling the optimal strategy to maintain consistency over time, even though the original problem might not inherently support such consistency. Comparisons with the Deep Hedging algorithm in various numerical experiments showcase the efficiency and accuracy of the proposed method.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141941635","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 : 2024-08-03DOI: 10.1007/s10203-024-00470-0
Viviana Fanelli, Silvana Musti
We propose in this paper a method for verifying the non-existence of anatocism in a periodic amortization with n periodic installments, by the replication of its cash flows. The cash flows are obtained by recursively constructing an appropriate sequence of n consecutive single period loans, at the periodic interest rate i, each one with repayment of principal and interest at the end of the single period. Since each elementary transaction is concluded within one time unit, there is no possibility of interest accruing on interest and hence anatocism is ruled out. Therefore, this characteristic must be acknowledged to be valid also for the loan amortization schedule with n periodic installments whose cash flows are perfectly replicated by the unique loan sequence obtained.
我们在本文中提出了一种通过复制现金流来验证 n 期定期分期付款中不存在锐减现象的方法。现金流是通过递归构建一个适当的 n 个连续的单期贷款序列得到的,每笔贷款的周期利率为 i,每笔贷款在单期结束时偿还本金和利息。由于每笔基本交易都是在一个时间单位内完成的,因此不可能出现利滚利的情况,也就排除了锐减的可能性。因此,必须承认这一特征也适用于有 n 个定期分期付款期的贷款摊还表,其现金流完全由所获得的唯一贷款序列复制。
{"title":"Amortization dismantling to remove any doubt of anatocism","authors":"Viviana Fanelli, Silvana Musti","doi":"10.1007/s10203-024-00470-0","DOIUrl":"https://doi.org/10.1007/s10203-024-00470-0","url":null,"abstract":"<p>We propose in this paper a method for verifying the non-existence of anatocism in a periodic amortization with <i>n</i> periodic installments, by the replication of its cash flows. The cash flows are obtained by recursively constructing an appropriate sequence of <i>n</i> consecutive single period loans, at the periodic interest rate <i>i</i>, each one with repayment of principal and interest at the end of the single period. Since each elementary transaction is concluded within one time unit, there is no possibility of interest accruing on interest and hence anatocism is ruled out. Therefore, this characteristic must be acknowledged to be valid also for the loan amortization schedule with <i>n</i> periodic installments whose cash flows are perfectly replicated by the unique loan sequence obtained.\u0000</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141941636","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 : 2024-08-03DOI: 10.1007/s10203-024-00469-7
Samuel S. Santos, Marcelo Brutti Righi, Eduardo Horta
Risk measures satisfying the axiom of comonotonic additivity are extensively studied, arguably because of the plethora of results indicating interesting aspects of such risk measures. Recent research, however, has shown that this axiom is incompatible with properties that are central in specific contexts. In this paper, we present a literature review of these incompatibilities. Specifically, we highlight the conflict between comonotonic additivity and surplus invariance, eligible assets, elicitabilty, and dynamic consistency.
{"title":"The limitations of comonotonic additive risk measures: a literature review","authors":"Samuel S. Santos, Marcelo Brutti Righi, Eduardo Horta","doi":"10.1007/s10203-024-00469-7","DOIUrl":"https://doi.org/10.1007/s10203-024-00469-7","url":null,"abstract":"<p>Risk measures satisfying the axiom of comonotonic additivity are extensively studied, arguably because of the plethora of results indicating interesting aspects of such risk measures. Recent research, however, has shown that this axiom is incompatible with properties that are central in specific contexts. In this paper, we present a literature review of these incompatibilities. Specifically, we highlight the conflict between comonotonic additivity and surplus invariance, eligible assets, elicitabilty, and dynamic consistency.</p>","PeriodicalId":43711,"journal":{"name":"Decisions in Economics and Finance","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-08-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141885708","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}