Reading List Risk Management Journal articles 2012-2014 Institute and Faculty of Actuaries May 2015 Compiled by IFoA Library Service INSTITUTE AND FACULTY OF ACTUARIES LIBRARY SERVICES Institute and Faculty of Actuaries Level 2, Exchange Crescent 7 Conference Square EDINBURGH EH3 8RA Institute and Faculty of Actuaries 7th Floor, Holborn Gate 326-330 High Holborn LONDON WC1V 7PP Tel 0131 240 1311 Fax 0131 240 1313 Tel 020 7632 2114 Fax 020 7632 2111 e-mail:
[email protected] ********** Articles in this reading list and on the IFoA online catalogue are from the following journals and magazines: The Actuary (UK) Anales del Instituto de Actuarios Españoles (Epoca 3a) Annals of Actuarial Science (UK) Applied Mathematical Finance Australian Journal of Actuarial Practice British Actuarial Journal (BAJ) (UK) Bulletin d’Actuariat Français (France) European Actuarial Journal (Austria, Belgium, France, Germany, Greece, Hungary, Italy, Poland, Portugal, Slovenia, and Switzerland) The European Actuary Geneva Papers on Risk and Insurance: Issues and Practice Insurance: Mathematics and Economics International Social Security Review Journal of Risk and Insurance Journal of Risk and Uncertainty Journal of the Royal Statistical Society (Series A) (selectively indexed) North American Actuarial Journal Risk Management and Insurance Review Scandinavian Actuarial Journal South African Actuarial Journal Variance (Casualty Actuarial Society) Article references listed may have generic URL links to the journal’s online publication archive or ‘DOI’ (Digital Object Identifier) permanent links to the article published online. Members of the Institute and Faculty of Actuaries can access full text of the articles after login either through the IFoA website or to the Athens portal to online resources that the IFoA library services subscribes to for members. Please contact
[email protected] to request an Athens account and login, citing your IFoA member number. 1 THE ACTUARY O'Brien, Christopher D (2012). Actuaries as CROs?. Staple Inn Actuarial Society, - 1 pages. [RKN: 74927] The Actuary (2012) January/February : 26. Chris O'Brien considers how the chief risk officer's remit varies and what role actuaries have in risk management Internet URL: http://www.theactuary.com/archive/2012/ Cook, Paul; Rajoo, Meera (2012). A free lunch...from the EU?. Staple Inn Actuarial Society, - 2 pages. [RKN: 74929] The Actuary (2012) January/February : 30-31. Solvency II offers a real incentive for diversifying risk, but is it quite the bonus it appears to be? Paul Cook and Meera Rajoo investigate Internet URL: http://www.theactuary.com/archive/2012/ Smith, Andrew (2012). Book Review : Systems of frequency curves. Staple Inn Actuarial Society, - 1 pages. [RKN: 74924] The Actuary (2012) January/February : 36. Andrew Smith reviews Systems of frequency curves by WP Elderton and NL Johnson Internet URL: http://www.theactuary.com/archive/2012/ Klumpes, Paul (2012). Counting the cost of enterprise risk management. Staple Inn Actuarial Society, - 2 pages. [RKN: 74939] The Actuary (2012) March : 30-31. Paul Klumpes looks at the accountant's perspective of managing risk Internet URL: http://www.theactuary.com/archive/2012/ Schneider, Richard (2012). Embedding and Solvency II : Know your model. [RKN: 45937] The Actuary (2012) April Richard Schneider discusses the importance of understanding and communicating model limitations to ensure effective risk management within Solvency II and beyond. Internet URL: http://www.theactuary.com/archive/2012/ Mohammed, Armoghan (2012). When black swans turn to grey. Staple Inn Actuarial Society, - 1 pages. [RKN: 73829] The Actuary (2012) April : 20. Armoghan Mohammed asks whether the reoccurrence of high-risk events signals a need to review risk planning Internet URL: http://www.theactuary.com/archive/2012/ Curtis, Rob (2012). Global lockdown?. Staple Inn Actuarial Society, - 2 pages. [RKN: 73877] The Actuary (2012) May : 28-29. Rob Curtis takes a look at what the enforcement of recovery and resolution plans could mean for insurers. Internet URL: http://www.theactuary.com/archive/2012/ Martinez, Cristina (2012). The two sides of a risky coin. Staple Inn Actuarial Society, - 1 pages. [RKN: 73977] The Actuary (2012) June : 8. A pragmatic partnership between actuarial approaches and risk management can benefit many businesses, says Cristina Martinez Internet URL: http://www.theactuary.com/archive/2012/ Reynolds, Neil (2012). Solvency II simulators: Back to the future?. Staple Inn Actuarial Society, - 1 pages. [RKN: 73978] The Actuary (2012) June : 19. Can the use of simulators help us to explore and develop a level of understanding of the complexities of Solvency II, asks Neil Reynolds Internet URL: http://www.theactuary.com/archive/2012/ Purcell, Richard; Mee, Gareth (2012). Solvency II risk margin: To hedge or not to hedge. Staple Inn Actuarial Society, - 2 pages. [RKN: 73979] The Actuary (2012) June : 22-23. Richard Purcell and Gareth Mee consider how an insurer's Solvency II internal model definition could affect its decision to hedge the risk margin. Internet URL: http://www.theactuary.com/archive/2012/ Jobanputra, Deepak (2012). Delving into the unknown. Staple Inn Actuarial Society, - 1 pages. [RKN: 70758] The Actuary (2012) July : 5. Can we develop a fool-proof risk plan for every eventuality, asks Deepak Jobanputra. Internet URL: http://www.theactuary.com/archive/2012/ Carswell, Wilson (2012). Living legacy. Staple Inn Actuarial Society, - 2 pages. [RKN: 70765] The Actuary (2012) July : 24-25. Dr Wilson Carswell looks at the causal link between the untimely death of Lawrence of Arabia and Periodic Payment Orders (PPOs). Internet URL: http://www.theactuary.com/archive/2012/ Ball, Matthew; Jing, Yi; Sullivan, Landon (2012). The next big thing. Staple Inn Actuarial Society, - 3 pages. [RKN: 70768] The Actuary (2012) July : 30-32. Matthew Ball, Yi Jing and Landon Sullivan examine why quantifying risks from mass torts has lagged behind natural catastrophe modelling and how recent advances make it possible to prepare for the 'next asbestos'. Internet URL: http://www.theactuary.com/archive/2012/ 2 [RKN: 45965] The Actuary (2012) September Alan Chalk uses R to visualise data in Google Earth. [RKN: 45953] The Actuary (2012) November Cobus Fourie and James Latto examine risk appetite frameworks as part of the regulatory push for improved risk management standards.1 pages. We should see risk as a potential opportunity to define a solution. Richard (2012). Ben Gunnee says the new rules could push up costs and hit the operations of European pension funds using over-the-counter derivatives Internet URL: http://www. Philip (2012). .com/archive/2012/ Ulrich. Eamonn (2012). [RKN: 70683] The Actuary (2012) September : 7.com/archive/2012/ Chapman. Internet URL: http://www. A weather eye on risk strategy.theactuary. Internet URL: http://www. . David. Internet URL: http://www. [RKN: 45968] The Actuary (2012) September Peter Ulrich and Chris Ordowich outline how solvency capital requirements compare using RMS scenario-based models versus the Solvency II standard formulas. David (2012). Underwood.com/archive/2013/ 3 . [RKN: 70725] The Actuary (2012) August : 8. Staring into a black hole.com/archive/2012/ Cantle. Ordowich. . suggests Philip Scott Internet URL: http://www.theactuary. Staple Inn Actuarial Society.theactuary.1 pages. An appetite for risk. Preparing for Basel III. [RKN: 70916] The Actuary (2012) October : 6.com/archive/2012/ Scott. Neil. Philip.com/archive/2012/ Jobanputra. Ingram.theactuary. [RKN: 71165] The Actuary (2012) December : 6.theactuary.theactuary. Ben (2012).com/archive/2012/ Ellis. Chris (2012). Staple Inn Actuarial Society. Neil Cantle and David Ingram highlight the perils of modelling outcomes and show how to avert danger with systems thinking.1 pages. Queries the meaning of the use of the term 'black swan' events in the article published in the September Actuary Magazine. pointing out that they are.theactuary.theactuary. Ralph (2012). Is it time to embrace risk?. Staple Inn Actuarial Society. Michael. Crash course. Staple Inn Actuarial Society. Staple Inn Actuarial Society. Climate change's influence on actuarial disciplines can help us to understand risk. Deepak (2012). Internet URL: http://www.theactuary.1 pages. Staple Inn Actuarial Society. Staple Inn Actuarial Society. [RKN: 70906] The Actuary (2012) October : 30. . Peter. . [RKN: 70673] The Actuary (2012) September : 8.Gunnee. Andrew Haldane and Benjamin Nelson argue the need for a fundamental rethink of risk management tools and regulatory capital requirements. McMurrough. Uses the example of the West Coast rail line procurement fiasco to highlight lack of actuarial influence in the area of risk managment.com/archive/2012/ Anonymous (2012). Response to the suggestion that actuaries should be involved in projects such as the procurement of a West Coast rail franchise. Alert to black swan-song?. Internet URL: http://www. Alan (2012). Andrew G. Internet URL: http://www. Thompson. The risk of managing risk.2 pages. Alert to black swan soapbox : Letter of the month. Staple Inn Actuarial Society. Internet URL: http://www. Alice (2012). We are 'Railing against complacency' : Letter to the Editor. . [RKN: 45970] The Actuary (2012) October David Ingram. .com/archive/2012/ Ingram. Railing against complacency : Letter of the month.theactuary. Michael Thompson and Alice Underwood question why Insurers will never accept a single approach to ERM.com/archive/2012/ Baxter. . Modelling the 1-in-200 risks. Nelson.com/archive/2012/ Haldane. [RKN: 45954] The Actuary (2012) November Ralph Baxter highlights the importance of managing external data and how it is integral in maintaining operational best practice.theactuary. Benjamin (2012). [RKN: 70678] The Actuary (2012) September : 5.theactuary.theactuary. [RKN: 70905] The Actuary (2012) October : 28. . James (2012). Cobus. The world of software : And then there was R. [RKN: 71234] The Actuary (2013) January/February : 6.com/archive/2012/ Chalk. Staple Inn Actuarial Society. Internet URL: http://www.1 pages. Latto. Colin (2013).2 pages.com/archive/2012/ Fourie.com/archive/2012/ Wilson.1 pages. suggests Deepak Jobanputra Internet URL: http://www. Philip Ellis and Eamonn McMurrough say it is time for the industry to wake up to the frequency of catastrophe risk Internet URL: http://www.1 pages. Internet URL: http://www.theactuary. Internet URL: http://www. Risky business. Stochastic models might help financial firms to understand risks. . Staple Inn Actuarial Society. Matthew (2013).1 pages. Staple Inn Actuarial Society. John (2013).1 pages.theactuary. Andrew. Internet URL: http://www.com/archive/2013/ Smith. . Talking the same language.com/archive/2013/ Bishop.theactuary. Book review : Anti-fragile. . Staple Inn Actuarial Society.Dequae.3 pages.theactuary.theactuary. Staple Inn Actuarial Society. Matthew (2013). Neil (2013).1 pages.com/archive/2013/ Porter. Book review : The blind spot. Internet URL: http://www. says John Bielski. Good enterprise risk management needs everyone in an organisation to have a consensus on the subject. Staple Inn Actuarial Society.theactuary.com/archive/2013/ Fulcher.2 pages. [RKN: 71264] The Actuary (2013) March : 18-19. Neil Cantle looks at the 'Own Risk and Solvency Assessment' that firms will be facing.theactuary. [RKN: 74158] The Actuary (2013) October : 26-28. Staple Inn Actuarial Society. .com/archive/2013/ Klumpes. Book review: Risk management issues in insurance by Martin Bird and Tim Gordon. Internet URL: http://www.com/archive/2013/ Cantle.3 pages.com/archive/2013/ Bielski. Keeping the lights on.com/archive/2013/ Edwards. Paul (2013).2 pages. [RKN: 71257] The Actuary (2013) January/February : 36. [RKN: 74157] The Actuary (2013) October : 24-25. [RKN: 71261] The Actuary (2013) March : 6. . Jackie (2013).theactuary. Staple Inn Actuarial Society. . Risks and opportunities in the UK electricity market Internet URL: http://www. . Modern risk strategy is hard. Alex (2013).theactuary.theactuary. Staple Inn Actuarial Society. Review of the book by Nassim Nicholas Taleb Internet URL: http://www.com/archive/2014/ 4 . This is about much more than producing a risk glossary.1 pages. Staple Inn Actuarial Society. . [RKN: 71267] The Actuary (2013) March : 26-28. [RKN: 70698] The Actuary (2014) March : 33. [RKN: 70959] The Actuary (2013) June : 22-23.theactuary.theactuary. . Internet URL: http://www. Staple Inn Actuarial Society.com/archive/2013/ Ntelekos.theactuary. Closer ties needed between actuaries and catastrophe modelling Internet URL: http://www. Review of the book by William Byers Internet URL: http://www. [RKN: 71278] The Actuary (2013) April : 7.1 pages. Powerful combination: long memory meets free thinking : Letter of the month. Priceless possessions. John (2013).com/archive/2013/ Smith. Appreciates the article by Faisal Zai in the January/February Actuary on finance theory and the management of financial risk Internet URL: http://www. Andrew (2014). Behaviour under control. Philip (2013). Jakhria.3 pages. Marie Gemma (2013).com/archive/2013/ Maguire. Staple Inn Actuarial Society. [RKN: 70492] The Actuary (2013) May : 38. . . Edwards.3 pages. Staple Inn Actuarial Society. Cyber reality: time to quantify risk. [RKN: 70964] The Actuary (2013) June : 29.1 pages. [RKN: 71238] The Actuary (2013) January/February : 8. primarily because modern business is complex. Tom (2013). Parit (2013).theactuary. . [RKN: 70962] The Actuary (2013) June : 24-26. Graham. [RKN: 74149] The Actuary (2013) December : 22-24. Multinationals are having to face the reality of enterpise-wide risk management practices Internet URL: http://www. but do we forget the risk that the model itself fails? Internet URL: http://www. Model behaviour. Bridging the gap.2 pages. Matthew (2013).com/archive/2013/ Scott. Staple Inn Actuarial Society. It’s about developing a framework that improves the overall management of the business and then linking this with the business model. . . Stand and deliver. Underestimating the value of intangible assets is a costly route to irreversible reputational damage Internet URL: http://www.1 pages. Worth the risk?. Staple Inn Actuarial Society. A call for improved data to counter the growing threat to information security Internet URL: http://www. Has your ERM framework missed a fundamental risk type? Graham Fulcher and Matthew Edwards explore the issue. The cross practice initiatives put forward by the ERM committee Edwards. All in the risk mix. Fortiana Gregori. [RKN: 46591] Anales del Instituto de Actuarios Españoles (Epoca 3a) (2013) 19 : 1-30. Louise (2014). the analysis of the main contributions of ORSA for the insurance companies is developed. Practical examples and real-life business cases will be provided to illustrate the process. Antonio. scenarios projection and the inclusion of technique such as reverse testing. [RKN: 74328] The Actuary (2014) December : 36-37. highlighting points such as stress. Elliott.theactuary. Resulting misclassification probabilities and error cost functions are evaluated. Teresa.1 pages. Victor (2013). Internet URL: http://www. Possible future lines of research are outlined regarding the models.htm 5 . Bridging the divide. Chris Lewin looks at the risk initiative (RAMP) between the actuarial and civil engineering professions Internet URL: http://www. Article in English EIOPA (European Insurance and Occupational Pensions Authority). illustrate the procedure. Icki (2014).2 pages.2 pages. Boj del Val. Goodness-of-fit is assessed by means of the Kolmogorov-Smirnov and Gini index statistics. Cyber catastrophe: how bad could it get?. or models. [RKN: 43702] Anales del Instituto de Actuarios Españoles (Epoca 3a) (2012) 18 : 19-40. ORSA is designed to improve the risk management.org/espa/web-nueva/publicaciones/anales/anales.actuarios. Simon Ruffle and Louise Pryor are developing frameworks for cyber catastrophe analysis. In addition.actuarios. Staple Inn Actuarial Society. .com/archive/2014/ Coburn.htm Rivas.theactuary. Staple Inn Actuarial Society. [RKN: 70849] The Actuary (2014) April : 25-27.com/archive/2014/ Iqbal. Capital requerido para el riesgo de suscripción en el ramo de crédito. We present a compendium of five different options.theactuary. Reflection on the risk management landscape for the profession Internet URL: http://www. María Victoria. In this presentation the differences and similarities between the jurisdictions are described. of the SCR calculation of underwriting credit risk. de la Peña Esteban. stress testing. [RKN: 74354] The Actuary (2014) September : 6. Internet URL: http://www. Staple Inn Actuarial Society. The costs of global violence Internet URL: http://www. Proxy models: The way of the future?.com/archive/2014/ ANALES DEL INSTITUTO DE ACTUARIOS ESPAÑOLES (EPOCA 3A) Costa Cor. Brian.1 pages.3 pages. Heras.org/espa/web-nueva/publicaciones/anales/anales. Staple Inn Actuarial Society. Split personalities. Eva. . . Editorial: Beyond the numbers. Juan (2012).actuarios. Internet URL: http://www.theactuary. Key contributions of own risk solvency assessment (ORSA) to the improvement of the ERM of insurance companies: a practical and international vision. Learners and learned : Letter to the Editor.org/espa/web-nueva/publicaciones/anales/anales.US regulator) OSFI (Office of the Superintendent of Financial Institutions -Canadian regulator) and other regulators are working on a new regulatory requirement called ORSA (Own Risk Solvency Assessment). Article in Spanish The goal of this paper is finding and evaluating criteria for choosing an adequate group assignation cut point from probabilities predicted by the distance-based logistic regression model. Simon. The objective of the regulators is to improve the stability of the insurance sector establishing an adequate risk management requirement that includes important aspects such as definition of the risk appetite. Article in Spanish We are performing an analysis of the models to evaluate the Solvency Capital Requirement – SCR – applicable to underwriting credit insurance risk.theactuary. scenario projection and the back-testing process with the aim to accurately assess the solvency capital requirement according to the situation of the company. Staple Inn Actuarial Society. Applications to real datasets. Chris (2014). The IFoA's Model Risk Working Party reflects on the cultural aspects of model risk Internet URL: http://www. The simplicity and ease of calculation of the standard formula may entail extra capital regarding the use of an internal model adapted to the risks of the entity. [RKN: 74359] The Actuary (2014) September : 28-29. . Martin (2014). The treatment of catastrophic risk and the time horizon considered in Solvency II are addressed.theactuary. José (2012). for example a backtesting methodology. Suggestions for possible changes are included in order to reflect the reality of risk. Ruffle. in concert with the ROC curve. [RKN: 43703] Anales del Instituto de Actuarios Españoles (Epoca 3a) (2012) 18 : 41-76. Differences between those options are shown and certain aspects are discussed.com/archive/2014/ Lewin. They explain how mapping the cyber economy enables risk modelling of systemically important IT providers Internet URL: http://www. NAIC (National Association of Insurance Commissioners. [RKN: 74327] The Actuary (2014) December : 34-35.com/archive/2014/ Chamunorwa. Business applications of proxy techniques Internet URL: http://www. namely two credit risk portfolios. . . especially in the decision-making process with regard to the level of solvency according to their risk exposure. Staple Inn Actuarial Society. [RKN: 74351] The Actuary (2014) September : 5.com/archive/2014/ Institute and Faculty of Actuaries Model Risk Working Party (2014). Kelvin (2014). Pryor.htm Casanovas Arbó. reporting and assessment process of insurance companies. Andrew Coburn. Computations are performed with the dbstats package in the R environment. validation of the solvency requirement using. Bondad de ajuste y elección del punto de corte en regresión logística basada en distancias: aplicación al problema de credit scoring.1 pages. Andrew.Robinson. with application to credit scoring problems. Cambridge University Press. Review: The Solvency II Handbook. allow the generation of portfolios without risk.by David Buckham David. ISBN9780521111645 DOI: http://dx. edited by Jonathan Reuvid (Kogan Page. 2012).doi. Chapman & Hall/CRC Finance series. Cambridge University Press.openathens.org/10. by John Fraser and Betty J Simkins Betty J (John Wiley. Book review: Executive's guide to Solvency II. Bolancé Catalina. Eduardo Trigo (2014). Brett (2013). 209pp.2 pages. Review: Stress Testing for Financial Institutions: Applications.00. Review: Executive's Guide to Solvency II.openathens.org/10. 2009). £99.. Institute and Faculty of Actuaries. . Jason Wahl and Stuart Rose (John Wiley & Sons. Review: Financial Enterprise Risk Management. which is an important objective in Solvency II. Rafael.Iturricastillo. Cambridge University Press. Article in Spanish Risk management: immunization versus replicating portfolios This paper compares two methods that. by David Buckham David.1017/S1748499512000243 (access via Athens login http://www.2 pages. Montserrat Guillén. Joseba. In this work we study the formulas for the calendar year reserves. Aditi (2013). £44.org/espa/web-nueva/publicaciones/anales/anales. ISBN9781439895924 DOI: http://dx. ISBN: 978-1-906348-11-3 DOI: http://dx. Cambridge University Press. edited by Daneil Rösch and Harald Scheule (Risk Books. (hardback).2 pages.doi. Institute and Faculty of Actuaries. . 2011).org/10. advantages and disadvantages that has each strategy.htm ANNALS OF ACTUARIAL SCIENCE Dwonczyk.doi. Institute and Faculty of Actuaries. 457pp.2 pages. Risk Books. Book review: Managing business risk: a practical guide to protecting your business. (hardback). Institute and Faculty of Actuaries. 2010). £65. [RKN: 74034] Annals of Actuarial Science (2013) 7(1) : 151-152. . 8th edition.2 pages.3 pages. John Wiley & Sons.openathens. 2011).net/) Malyon. Review: Enterprise Risk Management: Today's Leading Research and Best Practices for Tomorrow's Executives. . 2012. Cambridge University Press. by Paul Sweeting (Cambridge University Press. Cambridge University Press. Dean (2013).00. Developing ERM Frameworks in Insurance and Reinsurance Companies.net/) Parekh. £50. Jason Wahl and Stuart Rose. edited by Cruz Marcelo (Risk Books.00 (US$99. £70. Scheule Harald.openathens.00. Kogan Page Ltd.1017/S1748499512000322 (access via Athens login http://www. 562pp. Cambridge University Press. John Wiley & Sons. 2011. Institute and Faculty of Actuaries. Juan Espejo (2014). Jim Gustafsson and Jens Nielsen Jens Perch (Chapman & Hall/CRC. edited by Cruz Marcelo.3 pages.1017/S1748499512000218 (access via Athens login http://www. edited by Rösch Daniel. (hardback). 577pp. . from which we can make calculations in a financial environment. edited by Reuvid Jonathan.org/10. Review: Managing Business Risk: a practical guide to protecting your business. . Fraser John. Regulations and Techniques. This comparison will take into account their effectiveness. Ameet (2013). Guillén Montserrat. Risk Books. Fernández. [RKN: 47085] Anales del Instituto de Actuarios Españoles (Epoca 3a) (2014) 20 : 83-116.doi. [RKN: 74033] Annals of Actuarial Science (2013) 7(1) : 149-150. These techniques are a critical part of the supply of risk management tools. 2008. 2010.doi. Patrick (2013). [RKN: 74036] Annals of Actuarial Science (2013) 7(1) : 155-157. £145. 8th edition (2012).1017/S1748499512000310 (access via Athens login http://www. [RKN: 74037] Annals of Actuarial Science (2013) 7(1) : 158-159.openathens.org/10. Internet URL: http://www. 274pp. Book review: Financial enterprise risk management. Sweeting Paul. Review: Quantitative Operational Risk Models. and Nielsen Jens Perch. ISBN: 978-1-906348-19-9 DOI: http://dx. Catalina Bolancé.org/10. 194pp. (hardback).actuarios. Simkins Betty J.actuarios. Moreno. [RKN: 74041] Annals of Actuarial Science (2013) 7(1) : 167-168.1017/S174849951200022X (access via Athens login http://www. Costa Cor.00.99. regulations and techniques.. Accompanying the study we include a RExcel application which calculates actual values for different scenarios. 2011. 614pp. Eva. Institute and Faculty of Actuaries. Iván. 2012).1017/S1748499512000206 (access via Athens login http://www.org/10.net/) Penman.net/) 6 . These errors help us to incorporate solvency margins with a statistical sense. [RKN: 74035] Annals of Actuarial Science (2013) 7(1) : 153-154. Book review: The Solvency II handbook: developing ERM frameworks in insurance and reinsurance companies. Cambridge University Press. in theory. Gustafsson Jim. Teresa. 2008). (paperback). Book review: Quantitative operational risk models.doi. Martinez. and the actuary needs to have an informed opinion on what possibilities. Book review: Stress testing for financial institutions: applications.org/espa/web-nueva/publicaciones/anales/anales. [RKN: 74040] Annals of Actuarial Science (2013) 7(1) : 164-166. Alan (2013).openathens. [RKN: 47084] Anales del Instituto de Actuarios Españoles (Epoca 3a) (2014) 20 : 53-82.1017/S1748499512000255 (access via Athens login http://www.00. The GLM has as a particular case the deterministic Chain-Ladder (CL) method. Article in Spanish The Generalized Linear Model (GLM) is a stochastic model with application to the claim reserving problem. Internet URL: http://www.htm Boj del Val. Iñaki de la Peña.net/) Jarvis. Gestión del riesgo: inmunización versus réplica de carteras. Book review: Enterprise risk management: today's leading research and best practices for tomorrow's executives. ISBN: 978-0-470-49908-5 DOI: http://dx.openathens. Robert (2013). .doi. using analytical formulas or predictive distributions. Institute and Faculty of Actuaries. 2009. and allows calculating prediction errors. Provisiones técnicas por años de calendario mediante el modelo lineal generalizado. advantages and disadvantages when managing risk.net/) Kelliher. ISBN: 9780749462826 DOI: http://dx.net/) Hathi.00). ISBN: 978-0-470-54572-0 DOI: http://dx. £70. we analyze and compare different versions of so-called guaranteed annuity options and guaranteed minimum income benefits with respect to the value of the option and the resulting risk for the insurer. a time consistency plays an important role. APRA. Internet URL: http://www. we examine whether a more risk-averse and a more ambiguity-averse individual will invest in more effort to shift his initial risk distribution to a better target distribution. in a multi-period model. a representative of the Actuaries Institute Risk Management Practice Committee and a representative of the prudential regulator. Christian Y. We show that different annuity conversion options have significantly different option values. 73. Available online Human capital risk permeates all other risks in a financial institution as was evidenced by the global financial crisis and subsequent events. 1849–1892) to study the value of information that resolves ambiguity.net/ Robert. Therond. the most important result of this survey was the identification that the linkages between human capital risks and other institutional risks was not well understood. with greater ambiguity aversion. Schilling. [RKN: 47106] Applied Mathematical Finance (2014) 21(3) : 270-297. but anecdotal evidence suggests this overriding risk was not well understood. While extensive literature exists on the valuation and risk management of financial guarantees embedded in insurance contracts.851449 (access via Athens login http://www. Pierre-E (2014).APPLIED MATHEMATICAL FINANCE Katsuki. Marinacci and Mukerji (2005. Katja (2014). both the corresponding longevity guarantees and interactions between financial and longevity guarantees are often ignored. and that different risk management strategies lead to a significantly different risk for the insurance company. A smooth model of decision making under ambiguity. The general types of questions asked are set out in Appendix A. Ruß. Carol (2014).openathens. The usual strong time consistency gives too severe a multi-period Tail Value at Risk (Tail VaR) from a practical viewpoint. Internet URL: http://www. [RKN: 46755] Australian Journal of Actuarial Practice (2014) 1 : 77-80. We also assume ambiguity about the probability distribution of the risk and consider a framework à la Klibanoff. Matsumoto. Discussions were held with 8 major insurers.actuaries.openathens.net/)/ ASTIN BULLETIN Kling. [RKN: 74212] ASTIN Bulletin (2014) 44 (2) : 197-236. and in some cases with greater risk aversion. John. [RKN: 74214] ASTIN Bulletin (2014) 44 (2) : 277-302. Finally. Jochen. Distortion risk measures. Royer.2013. Alexander.openathens. Econometrica. In particular.net/ AUSTRALIAN JOURNAL OF ACTUARIAL PRACTICE Evans.asn. When a coherent acceptability measure changes according to new information in the market. were well understood. and applies this framework to different annuity conversion options in deferred unit-linked annuities. while some aspects of human capital risk such as human resource management and occupational health and safety compliance. We study a weak type of time consistency and propose new multi-period Tail VaR measures. We show that this value increases with greater ambiguity.org/10.doi. The project identified that. Furthermore. The authors applied for and were successful in obtaining a grant from the Actuaries Institute to survey Australian insurers as to how they identified and managed human capital risk.au/knowledge-bank/australian-journal-of-actuarial-practice 7 . Tail VaR measures in a multi-period setting. Internet URL: http://www. The analysis is based on a combined stochastic model for both financial market and future survival probabilities. which is why events like the Libor and fixed interest scandal in the UK could easily recur with significant reputational damage for the institution involved. Koichi (2014). Yuta. Risk analysis of annuity conversion options in a stochastic mortality environment.1080/1350486X. we examine whether and to what extent an insurance company is able to reduce the risk by typical risk management strategies. We consider the class of concave distortion risk measures to study how choice is influenced by the decision-maker's attitude to risk and provide comparative statics results. A survey of human capital risk management in Australian insurers. Available via Athens: Taylor & Francis Online This paper studies a coherent acceptability measure which is a negative coherent risk measure. DOI: http://dx. The present paper provides a framework for a joint analysis of financial and longevity guarantees. ambiguity aversion and optimal effort. openathens. A review of the use of complex systems applied to risk appetite and emerging risks in ERM practice : Recommendations for practical tools to help risk professionals tackle the problems of risk appetite and emerging risk. The paper has been designed to meet the broad requirements of health insurers that would like to implement an ERM framework for the effective risk management of their health insurance lines of business. DOI: http://dx.56 pages. 18 January 2011. [RKN: 70195] BAJ (2012) 17(2) : 413-434.org/10. [RKN: 70186] BAJ (2012) 17(2) : 395-412. It is also the case whether the ‘entity’ is deemed to be the fund itself.net/) Kelliher. G C.doi. This paper sets out a classification system developed by the Risk Classification Working Party for the Profession that can be used as a common reference point for discussing risk. It uses the term ‘entity-wide risk management’ rather than ‘enterprise risk management’. The Management Board of the UK Actuarial Profession has identified enterprise risk management (ERM) as an area of growth.openathens. .1017/S1357321712000244 (access via Athens login http://www.org/10. This paper explores the application of ERM-style techniques to pension funds. [RKN: 73960] BAJ (2012) 17(1) : 256-257. Developments in the management of annuity business : Abstract of the London discussion . raising new capital from shareholders or branching into new business areas if existing ones have unattractive risk-reward characteristics) may not be open to many pension funds.openathens. to move 8 . Actuaries will not be required to use this system. Neil.1017/S1357321712000256 (access via Athens login http://www.23 pages.net/) Kemp. Yin.18 pages.1017/S1357321712000104 (access via Athens login http://www. there are aspects of pension arrangements. Neil.net/) Kemp. A common risk classification system for the Actuarial Profession. This is the case whether the fund is defined benefit or defined contribution in nature. Godfrey. J.doi. . D.org/10. Enterprise risk management for health insurance from an actuarial perspective. Institute of Actuaries. A common risk classification system for the Actuarial Profession : Abstract of the London discussion. M H D (2012). Patel.openathens.doi. Wilmot. . Entity-wide risk management for pension funds. Smith. [RKN: 70185] BAJ (2012) 17(2) : 331-394.72 pages.2 pages. .1017/S1357321712000062 (access via Athens login http://www.doi. or a hybrid. Some of the techniques that business enterprises have for managing risk (e. The paper argues that the holistic approach to risk management (and governance) that is a hallmark of ERM is as appropriate to pension funds as it is to any other type of entity. M H D (2012). DOI: http://dx. or use the same nomenclature for completely different risks. [RKN: 70180] BAJ (2012) 17(2) : 259-314. Entity-wide risk management for pension funds : Abstract of the London discussion.org/10. [RKN: 70930] BAJ (2013) 18(1) : 145-162. DOI: http://dx. Indeed. . Enterprise risk management for health insurance from an actuarial perspective : Abstract of the London discussion. . Patrick (2013). Patrick. Patrick (2013). . London discussion. Cantle.1017/S1357321712000219 (access via Athens login http://www. G C (2012). even though both have the same acronym (‘ERM’). because many pension funds do not view themselves as business ‘enterprises’ as such.doi.openathens.org/10. 395-412. . and actuaries working in different organisations may use different terms to refer to the same risk.org/10. . particularly within the financial sector. It is an area which offers opportunities for actuaries. Risk terminology varies from organisation to organisation. DOI: http://dx. the sponsor or the two combined.net/) Allan. [RKN: 70928] BAJ (2013) 18(1) : 91-121.openathens. Vij.22 pages.g. P J M (2013). This paper focuses on Enterprise Risk Management (ERM) and strategic business management for health insurance companies in our world of ‘unknown unknowns’ and the emergence of unexpected risks over time. working with other disciplines.BRITISH ACTUARIAL JOURNAL (BAJ) Telford.18 pages. Klumpes. M H D. but it is hoped that common terminology will reduce the possibility of confusion in discussing risks. C C (2012). DOI: http://dx.64 pages. Entity-wide risk management for pension funds : Abstract of the Edinburgh discussion. Edinburgh discussion. J (2012).addendum. [RKN: 70931] BAJ (2013) 18(1) : 163-234. P O J.openathens.org/10. [RKN: 70929] BAJ (2013) 18(1) : 122-144. London discussion. 28 February 2011 DOI: http://dx.1017/S1357321712000396 (access via Athens login http://www. 21 February 2011 DOI: http://dx. 22 March 2010.1017/S1357321712000384 (access via Athens login http://www. A common risk classification system for the Actuarial Profession : Abstract of the Edinburgh discussion. It illustrates how Chief Risk Officers (CROs) can focus on ‘risk and opportunity management’ through an ERM framework.openathens. DOI: http://dx. DOI: http://dx.1017/S1357321712000086 (access via Athens login http://www.doi.1017/S1357321712000293 (access via Athens login http://www.org/10. that lend added impetus to the use of ERM-style techniques in practical pension fund management.doi.doi. [RKN: 70181] BAJ (2012) 17(2) : 315-330. whilst being resilient against ‘unknown unknowns’ and their emergence over time as ‘known unknowns’ and ‘known knowns’. 16 pages. such as the relationship between the fund and its sponsor.net/) Kelliher. The authors discuss how insurers can develop and apply risk management to build resilience in the face of the storms and shocks that may lie ahead. Risk management for health insurers in the context of Solvency II and broader European Commission regulatory requirements is also discussed.openathens. Peter (2012).net/) Orros. 413-434.doi.net/) Orros.org/10.net/) Kelliher. and thereby balance risks against opportunities.31 pages. Yun (2013).net/) Kemp. Cassandra. It presents the major advantage to compare. (2015).institutdesactuaires.doi. Within this framework.).uk/research-and-resources/documents/heavy-models-light-models-and-proxy-models-working-paper BULLETIN FRANÇAIS D'ACTUARIAT Underwood. P.openathens. An important issue is whether reporting is dominated by shareholder. Asian and US global top 25 insurers between 2006 and 2012 and (2) a survey of internal business reporting practices.org/10.M. Investigating risk reporting practices in the global insurance industry. [RKN: 43712] Bulletin Français d'Actuariat (2012) 12 (no.com/bfa/ Aouizerate. Parit. DOI: http://dx. 24) : 5-14. Jakhria. .. Internet URL: http://www. Other advantage. David (2012). Abhishek. the options available in the design and implementation of a model are discussed as well as the potential impact of the choices made.1017/S135732171300030X (access via Athens login http://www. Kumar.22 pages.org/10.. DOI: http://dx.openathens. It has a large field of applications: pricing. We evaluate whether current reporting practices are consistent with either political visibility.... DOI: http://dx. cultural effects. Neil (2013).doi. This leads to a key result concerning the distinction between risk scenario accuracy and risk distribution accuracy the key driver for risk capital estimation. Consequentially the Management Board allocated funds to support research projects in ERM in 2010–2011 and has worked with the ERM Practice Area Committee to identify the topics that they feel most suited to external research where the outputs will have a broad strategic value to the financial services sector. [RKN: 70932] BAJ (2013) 18(1) : 235-256. Edinburgh This paper investigates incentives and disincentives for risk reporting practices by global insurance companies. This index represents the artificial cover rate of a guarantee applied to the medical consumption of the entire customer's portfolio. Cocke. Heavy models.openathens. London. euro. Estimation risk in itself is related to operational risk in a way that the losses are arising from estimation errors. suggesting a basic framework for “replicating formula” type proxies into which many current proxy models fit. regulatory or managerial incentives. We re-characterise a disclosure index from prior research to examine the relation between the extent of risk disclosure and various managerial. [RKN: 70933] BAJ (2013) 18(1) : 257-269.openathens. Paul.R. Iain. A review of the use of complex systems applied to risk appetite and emerging risks in ERM practice : Abstract of the London discussion.org. and 18 November 2013. light models and proxy models : A working paper by the Proxy Model Working Party : Abstract of the London discussion. Our empirical analysis is based on (1) a content analysis of disclosures contained in annual reports of a sample of European.doi. Matthew. Finally. Elias. in particular. technical piloting. Hannibal. Dubey. Jean-Marc (2012).net/) Cantle. guarantees expressed on different bases (B. Frédéric (2013). This paper takes a look at some of the types of proxy model available to practitioners. Paper presented on 23 September 2013.1017/S1357321712000135 (access via Athens login http://www.out of their traditional sectors of employment. Ingram.. particularly in the area of capital management.institutdesactuaires. Members of the Profession also highlighted ERM as one of the two main areas where they wanted the Profession to focus their research efforts in the membership survey in 2009. Création d'un indicateur de niveau de garantie en frais de santé. Article in English The risk of not accurately estimating the amount of future losses is an essential issue in risk measurements. 24) : 15-34. Sessional research paper presented in London. four specific proxy models are discussed in greater detail.London: Institute and Faculty of Actuaries. 26) : 93-120. and drawing heavily on recurring themes of complexity. Estimation errors and SCR calculation.13 pages. portfolio control. Sources of estimation risk include errors in estimation of parameters which can affect directly the VaR precision. . . agency and other characteristics. Matthew C (2014). The ERM rainbow: working paper. A review of the use of complex systems applied to risk appetite and emerging risks in ERM practice : Abstract of the Edinburgh discussion.net/) Klumpes. Christopher.institutdesactuaires. in a homogeneous way. In this working paper. or idiosyncratic managerial incentives. DOI: http://dx. [RKN: 46665] Bulletin Français d'Actuariat (2013) 14 (no. This growth has been largely driven by the increased demands of a changing regulatory and risk management landscape set against the inability of traditional modelling techniques to keep up.S. use of the model. DOI: http://dx. We predict that the extent and nature of risk disclosures depends on cultural imperatives and managerial incentives. We examine various arguments for and against risk reporting. this process can be massively deployed on a large panel of contracts. Internet URL: http://www.S.36 pages.org/10. two of which are the subject of a case study.openathens.com/bfa/ 9 . It can be estimate only by observing the medical consumption without needing to read the guarantees tables. Its value measuring the performance guarantees sits between 0% and 100% (100% being the complete coverage of the spending).1017/S1357321713000147 (access via Athens login http://www. Modisett.net/) Cantle. [RKN: 46108] BAJ (2014) 19(3) : 692-727.org/10.doi.net/) Internet URL: http://www. Planchet. MacIntyre. Ravi (2014). Article in French This paper proposes a synthetic indicator that estimates the level of additional health guarantees for each medical expenses item. Internet URL: http://www. 2014. Neil (2013). benchmark. whether voluntary or compliance in nature.doi. .1017/S1357321714000087 (access via Athens login http://www. with the skill set required fitting well with an actuary's training and practical focus. [RKN: 47160] BAJ (2015) 20(1) : 147-166. 24 February 2014 The use of proxy models within the insurance sector has grown considerably in recent years.actuaries.com/bfa/ Karam. Alice.net/) Hursey. real costs. accuracy and.org/10. [RKN: 43711] Bulletin Français d'Actuariat (2012) 12 (no.1017/S1357321714000221 (access via Athens login http://www. we are interested in measuring the error induced on the SCR by the estimation error of the parameters. catastrophic losses and financial turmoil have deeply shaken the insurance and reinsurance industries.Published online. the first joint moment and other quantities related to our bivariate risk process. à l'origine développées par les climatologues. In particular. Manuel (2012). Maume-Deschamps. Available via Athens: Springer -. [RKN: 46667] Bulletin Français d'Actuariat (2013) 14 (no.Gatumel. July 2012 This paper considers risk processes with various forms of dependence between waiting times and claim amounts. Corina. [RKN: 47205] Bulletin Français d'Actuariat (2014) 14 (no. market complexity and lack of coordinated responses among states begs questions concerning the role of control and regulation.net/) Ben Salah. Ghislain (2012).org/10.openathens. moments generating functions.institutdesactuaires. Un changement de paradigme du secteur de l'assurance est nécessaire au cours des prochaines décennies pour faire face aux effets directs et indirects contestant sa rentabilité et son modèle commercial.1007/s13385-012-0046-4 (access via Athens login http://www. Risk processes with dependence and premium adjusted to solvency targets. les catastrophes météorologiques et climatiques deviennent difficilement assurable. This corresponds to the exposure of an insurance company to reinsurer failure and is difficult to assess due to a scarcity of reliable measures. qui a permis de passer des modèles religieux aux explications rationnelles. durant le 17ème et 18ème siècle. Bivariate compound renewal sums with discounted claims.org/10. 26) : 121-138. Ragnar (2012). DOI: http://dx.institutdesactuaires. Étienne. Marceau. It has long been considered as largely auto-regulated by the insurance market. Bivariate lower and upper orthant value-at-risk.com/bfa/ EUROPEAN ACTUARIAL JOURNAL Constantinescu. Elle aborde dans premier temps les changements climatiques observés ainsi que le large éventail des projections climatiques disponibles et les conséquences possibles sur les phénomènes météorologiques extrêmes à la lumière des conclusions présentées dans le cinquième rapport d'évaluation (AR5) du Groupe d'Experts Intergouvernemental sur l'Evolution du Climat et des dernières recherches scientifiques. Ces risques sont aggravés par la concordance du changement climatique avec l'évolution des tendances démographiques et socio-économiques.doi. joint moments. Internet URL: http://www. Mailhot. ranging from Cox processes with i. Dans un deuxième temps. the problem is to adjust the premium dynamically so as to obtain a given ruin probability (solvency requirement) for a fixed initial reserve (the financial capacity of the insurer).1007/s13385-012-0054-4 (access via Athens login http://www.openathens. Morales. This natural extension is possible thanks to the concept of Lévy systems that allows us to generalize well-known results for Lévy processes to a larger family of Markov additive processes. 2010) to a more general setting provided by the theory of Markov additive processes. Zied. Understanding and monitoring reinsurance counterparty risk. In this article. for a constant force of real interest. Enfin. distribution functions.net/) Cossette.net/) Léveillé. Norberg. This programme is carried through in various models for the claims process. Les vues exprimées dans ce document sont de la responsabilité de l'auteur et ne reflètent pas nécessairement celles de Generali.com/bfa/ Tomas.1007/s13385-012-0053-5 (access via Athens login http://www. stop-loss premiums and risk measures have been found for the univariate compound renewal sums with discounted claims. The impact of reinsurance credit on an insurers’ balance sheet. Mélina. Mhamed (2013). Gestion des risques naturels et changement climatique: les challenges des actuaires. Mesfioui. Internet URL: http://www. and have increased attention on the subject of reinsurance counterparty risk. Véronique. December 2012 Recursive moments. Severe difficulties encountered by sector leaders like AIG and Swiss Re have shed light on the potential fragility of the players.doi. Available via Athens: Springer -. DOI: http://dx. We give an expression for the expected discounted penalty function by extending results available in the literature.org/10. 28) : 5-105. The traditional point of view in ruin theory is reversed: rather than studying the probability of ruin as a function of the initial reserve under fixed premium.d. sont de plus en plus employées par l'industrie de l'assurance. [RKN: 44851] European Actuarial Journal (2012) 2(2) December : 273-288. we generalize some results in E Biffis and A Kyprianou (Insurance Mathematics & Economics 46:85–91. Mathieu. claim amounts. et dans le même temps. avant de détailler la modélisation des risques de catastrophes naturelles. Available via Athens: Springer -. Hélène. Ce travail a été supporté par la Chaire d'excellence Generali "Actuariat responsable: gestion des risques naturels et changements climatiques". Article in French Cette note dresse un bref état des lieux des risques climatiques et de leur évolution potentielle pour le secteur de l'assurance. DOI: http://dx. Les impacts du point de vue de l'assurance sont traités. Article in English Since 2008. moments and joint moments have also been found when the force of interest is stochastic. le processus de laïcisation des catastrophes naturelles. Sabine (2013). We particularly look at the key role of regulation in providing better risk measurement tools to assist in assessing the importance of reinsurance counterparty risk on insurance levels and the systematic development of risk management tools.Published online. La sollicitation des assureurs se fait de plus en plus forte.openathens.Published online. les défis et rôle du secteur de l'assurance face au changement climatique sont couverts. December 2012 In this paper we study the ruin problem for an insurance risk process driven by a spectrally-positive Markov additive process. We then discuss the impact of market discipline on this risk and point out the importance of control within the reinsurance industry. [RKN: 44838] European Actuarial Journal (2012) 2(1) July : 1-20. Julien (2014). [RKN: 46570] 10 . est brièvement développé. we extend some of the preceding results to the bivariate compound renewal sums with discounted claims by first presenting a lemma that gives the conditional joint distribution of the occurrence times of the claims given the number of claims of each type up to time t. we address the current state of reinsurance counterparty risk and existing means by which to measure it. We also discuss how more compact expressions for the expected discounted penalty function can be obtained using the notion of scale matrix of a Markov additive process. Lévy systems and the time value of ruin for Markov additive processes. The standing assumption is that the increments of the claims process possess exponential moments so that variations of the Lundberg upper bound for the probability of ruin are in reach. Lemoyne de Forges.i. result that will be used to get the second moment. More recently. to conditional renewal (Sparre Andersen) processes. Ces techniques. [RKN: 44852] European Actuarial Journal (2012) 2(2) December : 289-317. Particular attention is given to the family of spectrally-positive Markov-modulated Lévy processes. In this paper.doi. [RKN: 46959] European Actuarial Journal (2014) 4(2) : 383-409. Relying on the farm accountancy data network. Optimal investment under transaction costs for an insurer.doi. this analysis focuses on estimating the probability that such a fund would need to intervene and.1007/s13385-014-0090-3 (access via Athens login http://www. modeled by geometric Brownian motion. Stefan (2013). and Brownian perturbation.openathens. we provide a characterization for this extended EDPF in a setting involving a cumulative claims modeled by a subordinator. We illustrate how the extended EDPF can be used to compute the expected discounted value of capital injections for the Brownian perturbed risk model. (Annals of Applied Probability (2004) 14(3):1378-1397) and developments in fluctuation theory for spectrally negative Lévy processes.openathens. In the well-known EDPF introduced in seminal papers by HU Gerber and ESW Shiu (Insurance: Mathematics & Economics (1997) 21:129-137. [RKN: 47013] The European Actuary (2014) 5(1) October : 8-9. [RKN: 46810] European Actuarial Journal (2014) 4(1) : 219-246. Its solution is characterized and calculated by iteration of associated optimal stopping problems. Embrechts and Puccetti (2006a) [Embrechts P. are significant today. Puccetti G.org 11 . are now uncertain. Michel (2014). new characterizations of the bivariate lower and upper orthant VaR and desirable properties are given.net/)/ Thonhauser. The practical applications of these risk measures is very promising. The development of big data ensures that we will know even more. which leads to a more realistic scenario. we consider the expectation of a sequence of discounted penalty functions of new record minima reached by a claim of the risk process after ruin (and before recovery). This was the headline of the Wall Street Journal in November 2012 and as far as that is concerned today's world has not changed at all.net/)/ Ben Salah.org/10. Finally some numerical examples illustrate the resulting optimal investment policy and its deviation from the optimal investment behaviour without transaction costs. Available via Athens: Springer Value-at-risk (VaR) is an important risk measure widely used in actuarial science and quantitative risk management.European Actuarial Journal (2013) 3(2) : 321-357. North American Actuarial Journal (1998) 2(1):48-78) and HU Gerber and B Landry (Insurance: Mathemtics & Economics (1998) 22:263-276). DOI: http://dx.1007/s13385-013-0079-3 (access via Athens login http://www. Our environment is changing at an exponential rate.net/)/ Pigeon. On a generalization of the expected discounted penalty function to include deficits at and beyond ruin. Evaluation of the EU proposed farm income stabilisation tool by skew normal linear mixed models.doi. Available via Athens: Springer In this paper we propose an extended concept of the expected discounted penalty function (EDPF) that takes into account new ruin-related random variables. In a diffusion framework the classical solution to this problem is to hold a constant amount of money in stocks. Lower and upper confidence regions for random vectors are developed and used to provide new results on the convexity conditions and to suggest capital allocation techniques. In this paper. in that case. DOI: http://dx. Mathieu. their properties and their applications. Inspired by results of M Huzak et al. Matters which were regarded as certainties previously. Risks of which we had no knowledge yesterday. unexpected events our way. Zied (2014). Available via Athens: Springer We deal with the problem of minimizing the probability of ruin of an insurer by optimal investment of parts of the surplus in the financial market. The predictive distribution of future incomes given past revenues trajectory is derived and used for evaluation purposes. De Frahan. We motivate the use of the bivariate lower and upper ortant VaR for risk allocation.doi. We provide bounds on functions of random pairs and derive interesting relations with existing results. Practical illustrations and examples of the results are presented throughout the article. Journal of Multivariate Analysis 97(2):526-547] have introduced the multivariate lower and upper orthant VaR. DOI: http://dx. [RKN: 46571] European Actuarial Journal (2013) 3(2) : 359-383. In particular.org/10. Learning to love volatility.the-european-actuary. Bounds for functions of multivariate risks. Our objective is to study in details the multivariate lower and upper orthant VaR in the bivariate setting. Jeroen (2014). to represent bivariate ruin probabilities and for risk comparison. we must learn to benefit from disorder. This paper analyses this income stabilisation tool for a region in Belgium by means of a skew normal linear mixed model.openathens. One of them consists in providing co-financing support to mutual funds compensating farmers who experience a severe drop in their income.1007/s13385-014-0098-8 (access via Athens login http://www.org/10. However.org/10.doi.openathens.. such as translation invariance.” (Nassim Nicholas Taleb). especially in actuarial science and quantitative risk management. Particular attention is paid to additional requirements that could be imposed to the income stabilisation tool. DOI: http://dx. which in practice means continuous adaption of the investment position. we introduce both proportional and fixed transaction costs. “In a world that constantly throws big. Bruno Henry. the problem is now of impulse control type. (2006).net/)/ THE EUROPEAN ACTUARY Breen.1007/s13385-013-0078-4 (access via Athens login http://www. positive homogeneity and comonotonic additivity. the expected amount of each farm income compensation. what are we going to do with all that data? How are we going to use this knowledge in our models? Will we still require models in the future? Internet URL: http://www. Available via Athens: Springer The European Commission has introduced new risk management tools in the rural development pillar 2 of the Common Agricultural Policy. Denuit. In mathematical terms. doi.2012. First.org/10. (2) The more capital buffer a non-life insurance company had. The effect of the great east Japan earthquake on the stock prices of non-life insurance companies. Hsu.org/10. Available via Athens: Palgrave MacMillan We examine the relationship between natural disasters.net/) GENEVA PAPERS ON RISK AND INSURANCE Carter. we conclude by showing empirically that franchise value and the reputational posture of the insurance firms are positively related. DOI: http://dx. DOI: http://dx.openathens. Takashi (2013). Aziz N (2013). (3) The Earthquake Insurance System on Dwelling Risks in Japan not only indemnifies seismic losses but also functions as a Japanese stock market stabiliser. more likely to be life insurers and that have higher franchise value. Olivier (2013).org/10. The authors extended the standard paradigm for portfolio stress testing in two ways.net/)/ 12 . Mahul. political risk and insurance market development.net/)/ Chang.26 (access via Athens login http://www.doi.openathens. We also find that countries with lower levels of political risk experience higher insurance consumption. We provide evidence that the incidences of natural disasters and deaths caused by natural disasters lead to greater total insurance. Promoting better understanding on sustainable disaster risk management strategies : Editorial. Available via Athens: Palgrave MacMillan We analyse reputational signals and decisions surrounding capital acquisition by examining 76 insurance firms going public from 1996 to 2006. These results contribute to the growing body of knowledge on reputational risk management and should enhance capital acquisition strategies of insurance company managers. Yoshizawa. Second. Sebastian. The spread of this decrease was less for the stock prices of non-life insurance companies than for those of life insurance companies.openathens. Goldberg. especially non-life insurance companies. political risk and insurance market development in a panel of 39 countries over the period 1984–2009 using a dynamic panel two-step system generalised method of moments model. Last.29 (access via Athens login http://www. Shuofen. [RKN: 43638] Geneva Papers on Risk and Insurance (2012) 37(3) : 571-593. Atsushi.openathens.v68. political risk and their interaction effects are important determinants of insurance market development. Who benefits from building insurance groups? A welfare analysis of optimal group capital management.2012. Available via Athens: Palgrave MacMillan This paper compares the shareholder-value-maximising capital structure and pricing policy of insurance groups against that of stand-alone insurers. which we model by higher dead-weight costs of carrying capital. Richard B. Second.1057/gpp.20 (access via Athens login http://www. Our findings are as follows. We therefore emphasise that natural disasters. Gründl. [RKN: 43635] Geneva Papers on Risk and Insurance (2012) 37(3) : 485-508. Berdiev. DOI: http://dx.34 (access via Athens login http://www.FINANCIAL ANALYSTS JOURNAL Cuffe. they used a scenario-constrained optimization to incorporate the output of a portfolio stress test directly into an investment decision. They demonstrated the substantial impact of using historical and hypothetical covariance matrices in scenario construction. Helmut (2012). [RKN: 46084] Geneva Papers on Risk and Insurance (2013) 38 (3) : 401-405. The incidences of natural disasters and deaths attributable to natural disasters contribute to insurance market development under the tenure of a government with lower levels of political risk. Lisa R (2012).org/10. [RKN: 46085] Geneva Papers on Risk and Insurance (2013) 38 (3) : 406–448.net/)/ Takao.doi.2013. [RKN: 45655] Financial Analysts Journal (2012) 68(2) : 85-107. Groups can utilise intra-group risk diversification by means of capital and risk transfer instruments.2469/faj. DOI: http://dx.1057/gpp. The risk model is integral to the stress test.net/) Schlütter. Power. Mark L (2012). When we compare the performance of our insurance company sample to a matched sample of non-insurance firms. we find that more reputable underwriters market IPOs of more reputable insurers—insurers that are less risky. we show that the market requires a higher return from riskier/less reputable insurers when they go public. Stacy L. (1) The stock prices of insurance companies decreased right after the earthquake.1057/gpp. Natural disasters.doi. as well as life insurance and non-life insurance consumption. The trade-off between risk diversification on the one hand and higher dead-weight costs on the other can result in group-building being beneficial for shareholders but detrimental for policyholders. We also take into account that shareholders of groups could find it more difficult to prevent inefficient overinvestment or cross-subsidisation. we find that the greater reputational transparency of insurers allows the market to do a better job of determining future performance.2013. Available via Athens: Palgrave MacMillan DOI: http://dx. This paper investigates how this earthquake influenced the value of Japanese insurance companies.doi.openathens. Christophe. We first explore the relationship between proxies for insurance firm reputation and initial public offering (IPO) underwriter reputation.org/10. Chun Ping. Reputational signals and capital acquisition when insurance companies go public.net/) Courbage. they introduced a toolkit that enables investors to envision and administer extreme scenarios. These results suggest that underwriter and insurer reputations are aligned and send consistent signals. Allocating assets in climates of extreme risk : A new paradigm for stress testing portfolios.1057/gpp. In general. Yamasaki. Takuya.3 (access via Athens login http://www. [RKN: 46086] Geneva Papers on Risk and Insurance (2013) 38 (3) : 449-468.org/10. the higher the stock return. We show that using these instruments enables the group to offer insurance with less default risk and at lower premiums than is optimal for stand-alone insurers.2012.doi.openathens.n2. DOI: http://dx. Available via Athens: Palgrave MacMillan The Great East Japan Earthquake of 11 March 2011 incurred huge damages for Japan.14 (access via Athens login http://www.1057/gpp. Linping. Our research goal is to identify major determinants of the cat bond investment decision of insurance and reinsurance companies. [RKN: 46091] Geneva Papers on Risk and Insurance (2013) 38 (3) : 580-611.2013. including a potential role for mandatory insurance. Katja. In China.1057/gpp. Available via Athens: Palgrave MacMillan This paper uses the tools of welfare economics to analyse the appropriate mix of private sector and government responses to catastrophic events. The impact of disaster relief on economic growth: evidence from China. Xin. DOI: http://dx.openathens. This paper examines both issues. Calum G.51 (access via Athens login http://www.net/)/ Ou-Yang.org/10. Lucia. The first challenge is operational and arises from the lack of historical crop yield data at the farm household or village level. Chieh. Evaluating the resulting data set by means of exploratory factor analysis and logistic regression methodology. The annual growth rates of expected losses due to change in climate patterns (or “climate change factor”) are estimated based upon historical storm activities in the Atlantic Basin and catastrophe modelling. as well as the applicable regulatory regime are significant drivers of an insurer's propensity to invest. [RKN: 46088] Geneva Papers on Risk and Insurance (2013) 38 (3) : 495–520. Kong.18 (access via Athens login http://www. Jiawei (2013). Schmeiser. Lastly. These statistical findings are supported by further qualitative survey results and additional information from structured interviews with the managers of four large dedicated cat bond funds. we are able to show that the expertise and experience with regard to cat bonds.1057/gpp. This conclusion from the theoretical model is tested using Chinese provincial panel data and applying generalised method of moments (GMM) system estimation. including the form of subsidy. Nguyen. Cécile. DOI: http://dx. Available via Athens: Palgrave MacMillan We introduce a catastrophic risk model that captures the cumulative impact of climate change on future expected losses from hurricane risk. objective risks and the crop insurance problem in rural China.org/10. Available via Athens: Palgrave MacMillan In this paper we construct a simple two-period equilibrium model for analysing the impact of post-disaster transfer payments on economic growth. Subjective risks.16 (access via Athens login http://www.Jaffee. Alexander. Our empirical analysis shows that some flood protective behaviours of Vietnamese households are driven by the perception of flood risks.net/)/ Braun. Thomas (2013). DOI: http://dx. Rong. [RKN: 46092] Geneva Papers on Risk and Insurance (2013) 38 (3) : 612-633. This may require a substantial subsidy from the Chinese government in order to encourage participation. not mutually exclusive. we focus on one segment of the investor community.2013. Aubert. Adaptation makes an enormous difference and can offset additional losses even with a high climate change factor by making houses much more resilient. Available via Athens: Palgrave MacMillan We empirically investigate the determinants of household flood protective strategies and risk perception using data from a household-level survey conducted in spring 2012 in Vietnam. a result consistent with the Protection Motivation Theory (PMT). Lucia and determine when those are cost-effective for different time horizons and discount rates with and without climate change. private insurance and mitigation activities. In the article at hand. Wang. This model can be used to show that direct payment of disaster relief funds may aggravate rather than mitigate the negative impact of disasters on the economy.1057/gpp. Michel-Kerjan. Enforcing these protection measures will be critical. Therefore. post-disaster transfer payments are indeed found to exacerbate the negative impact of disasters on economic growth.17 (access via Athens login http://www. A key factor is that individuals maintain differing subjective beliefs concerning the probability or magnitude of the catastrophic event.openathens. little is known about the decision-making processes that drive the demand for this aspiring asset class.openathens. Erwann (2013). we examine the appropriate roles of post-disaster government aid. The second problem relates to a possible disconnect between objective measures of historical yields that is required for actuarial pricing in the supply of insurance and the subjective perceptions of future risk that is required to establish demand. Lucia. Xian.15 (access via Athens login http://www. Dwight.doi. Our results also suggest that both perceived probabilities and perceived consequences of floods are related to some cognitive processes included in the PMT.2013. Nie. What drives insurers’ demand for cat bond investments? : evidence from a pan-European survey. we have conducted a comprehensive survey among senior executives in the European insurance industry. Kunreuther. Arnaud. Manh-Hung (2013). challenges. Russell. The analysis focuses on the distinction between the ex ante and ex post welfare criteria. Available via Athens: Palgrave MacMillan Although catastrophe bonds are continuing to gain importance in today's risk transfer and capital markets.org/10. as well as incentive issues such as may arise from the Samaritan's dilemma. [RKN: 46087] Geneva Papers on Risk and Insurance (2013) 38 (3) : 469–494. We conclude that ex post welfare economics provides fundamental insights that have not been previously integrated into the discussions concerning the losses created by catastrophic events. we suggest that relief should be oriented to create work incentive in order to avoid its depressing effect on economic growth.doi.doi. In particular.net/)/ Turvey. The percentiles of the climate change factor are then used to measure expected hurricane losses in the Caribbean Island of St. Mo. An economic analysis of climate adaptations to hurricane risk in St. [RKN: 46089] Geneva Papers on Risk and Insurance (2013) 38 (3) : 521–546. Müller. Rong (2013). [RKN: 46090] Geneva Papers on Risk and Insurance (2013) 38 (3) : 547–579.org/10. For this purpose. The empirical analysis largely confirms the theoretical predictions.2013.doi. Living with floods : protective behaviours and risk perception of Vietnamese households. The substitution effect of direct transfer payment depresses post-disaster labour supply and hence economic growth.doi.openathens.org/10. Howard C. we document the important role played by public flood management policies in shaping individual flood risk perception and protective behaviours. DOI: http://dx.net/)/ Reynaud. Available via Athens: Palgrave MacMillan China's infant crop insurance industry faces two. Gao. Hato (2013). the perceived fit of the instrument with the prevailing asset and liability management strategy.2012.1057/gpp. through use of 13 . The welfare economics of catastrophe losses and insurance.net/)/ Xu.openathens.1057/gpp. DOI: http://dx. The analysis applies to insurance markets certain concepts that are now also being developed in the finance literature to examine the efficiency of naked credit default swaps and other instruments that are in essence side bets among agents with heterogeneous beliefs. We also undertake benefit-cost analyses on four adaptation measures for homes in St. Asymmetry of information (i) makes ex-post equal sharing unsustainable between two low-risk agents. we apply Viscusi's prospective reference theory to a corporate context.net/)/ GENEVA RISK AND INSURANCE REVIEW Chiu. Razvan.org/10.7 (access via Athens login http://www. [RKN: 74941] Geneva Risk and Insurance Review (2012) 37 (1) : 27-56. The model consists in a two-stage game where firms choose their internal capital level at stage one and compete on price at stage two. and that risk managers become more confident with their risk management decisions over time. we further show that all results on the willingness to pay can be applied directly to characterize the conditions under which a more risk averse individual will optimally choose to buy more stochastic improvement.net/)/ Outreville.1057/gpp. This is no longer true when agents have private information regarding their probability distribution of wealth. . Sabine (2012). J Mattias Graf (2012). risk is of considerable importance for the functioning of all economies and economic agents. Lemoyne de Forges. [RKN: 46878] Geneva Papers on Risk and Insurance (2014) 39(3) : 440-470.doi. In addition. The article also includes the assessment of identified vulnerabilities from liquidity risk in the context of the Bermuda market. Jean-François (2014).doi.3 per cent of farm households have perceptions that their pro-forma corn yields in 2011 would be higher than their historical memory.doi. Available via Athens: Palgrave MacMillan The Geneva Association and European Group of Risk and Insurance Economists. the result implies novel characterizations of individuals’ willingness to pay to reduce the probability of loss. As the condition always holds in the case of self-protection.1057/gpp. We find that firms learn from single events when making their risk management decisions. asymmetric information and the performance of insurance markets are important issues that are regularly discussed in the review. The purpose of this paper is to review and summarise some of the papers published in 2012 and 2013 that could help us to understand what risk is and the implications for the insurance industry. For this purpose. Direct elicitations of objective and subjective PERT parameters from 730 farmers in Shaanxi were collected in the fall of 2010. Andreas A (2014).1057/gpp.42 (access via Athens login http://www. . while 71. Systemic risk in the insurance sector: a review of current assessment approaches. DOI: http://dx. Although the idea of risk may be difficult to conceptualise. Corporate management of highly dynamic risks : Evidence from the demand for terrorism insurance in Germany.27 pages.2012. serve as a catalyst for progress in the understanding of risk and insurance matters. Risk aversion.63 per cent perceived the distribution of risks in 2011 to be lower than the historical average.26 pages. . Christian. We characterise the subgame perfect Nash equilibria of this game and focus attention on the strategic impact of insurers capital choice. Dominique (2012). W Henry (2012). [RKN: 74943] Geneva Risk and Insurance Review (2012) 37 (1) : 83-108. Henriet. The meaning of risk? Insights from the Geneva Risk and Insurance Review. von der Schulenburg. the resulting allocation satisfies the mutuality principle (which states that everyone's final wealth depends only upon the aggregate wealth of the economy). We define the optimal incentive compatible agreements in a two-agent model with two levels of wealth. The PERT distribution has the advantage of defining proximal (second best) distributions based on farmers’ recall of historical low. DOI: http://dx. 14 .net/)/ Jobst.org/10. Renaud. As a result we argue that the need for subsidising crop insurance premiums is a consequence of the dissonance between subjective and historical risks. Generalizations of existing results on optimal choice of self-protection can be obtained as corollaries.31 (access via Athens login http://www. adverse selection. This paper investigates a corporation's risk management response to highly dynamic risks.openathens. [RKN: 74940] Geneva Risk and Insurance Review (2012) 37 (1) : 1-26. We show that if the stochastic improvement satisfies a double-crossing condition. Although current evidence suggests that core insurance activities are unlikely to cause or propagate systemic risk. which provides valuable insights into systemic risk analysis in the domestic context of an insurance market dominated by non-life underwriting.org/10. Risk-sharing contracts with asymmetric information. Hardelin. the paper tests whether corporate risk managers have a clear understanding of the probability distribution of highly dynamic risks or if risk managers learn from severe losses and base their decisions upon day-to-day experience. Using a unique data set on the German terrorist insurance market. Risk aversion.2014. These issues are of particular relevance for insurers and the proper functioning of insurance markets. Pascalau. When there is complete information on the probability of the different outcomes. Firms behave as if they were risk averse for a standard reason of costly external finance. Available via Athens: Palgrave MacMillan The following article reviews the recent regulatory efforts in defining systemic risk in the insurance sector and the designation of systemically important insurers. the characteristics and business models of insurance firms vary by country and might require a more nuanced examination.openathens. . Thomann. [RKN: 74942] Geneva Risk and Insurance Review (2012) 37 (1) : 57-82. and (ii) induces exchanges when agents have the same realization of wealth. We examine how risk-sharing is impacted by asymmetric information on the probability distribution of wealth. We discuss the model with regard to the insurance industry specificities and regulation. We consider an oligopoly market where firms offer insurance coverage against a risk characterised by aggregate uncertainty. through publications like the Geneva Risk and Insurance Review. The paper further investigates whether risk managers become more confident in their risk management decisions over time. This paper considers the relationship between risk preferences and the willingness to pay for stochastic improvements.30 pages. and perception of downside risk is largely dictated by perceived mean and standard deviation. if v is both more risk averse and less downside risk averse than u. high and most likely future yields. [RKN: 46951] Geneva Papers on Risk and Insurance (2014) 39(4) : 768-781.the beta-PERT distribution. and subjective distributions through projections of low. Bourles. we find that when we regress farmers’ interest in crop insurance it is the skewness of subjective risk that matters. with a particular focus on non-traditional and/or non-insurance activities.2013.26 pages. downside risk aversion and paying for stochastic improvements. DOI: http://dx. and his optimal purchase of stochastic improvement when there is a given relationship between stochastic improvements and the amount paid for them. then a decision maker with utility v is willing to pay more than a decision maker with utility u. By establishing a general result on the correspondence between an individual's willingness to pay. Julien.openathens. high and typical yields to cover objective risk measures. We find that 82. Raising capital in an insurance oligopoly market. Finally. The problem is formulated as a constrained optimization problem with the objective of minimizing the value-at-risk of the net risk of the insurer while subjecting to a profitability constraint.S. . The paper provides an estimation methodology. .32 pages. Considering a consumer with standard preferences. Ken Seng.1057/grir. .openathens. and make use of an approach pioneered by Kimball (2014) for studying the impact of a marginal change in risk in optimal stochastic control models. We study the asymptotic impact of such distortions on hazard rates. Risk and the endogenous economist : Some comparisons of the treatment of risk in physics and economics. Eeckhoudt. Next. the sign of the successive derivatives of the utility function). two-action principal-agent model. [RKN: 74397] Geneva Risk and Insurance Review (2014) 39 (1) : 40-64. using estimates on household demand for durables and labour supply.g. We analyse situations where the background risk is environmental (always present) and where the background risk is contractual (only present if the contract is accepted). the safety loading for the reinsurance premium.24 pages. although the actual effect appears smaller than previously found in the U. Martin. Ligon. This paper complements the existing research on optimal reinsurance by proposing another model for the determination of the optimal reinsurance design.g. We provide conditions under which the environmental background risk decreases the agent's expected wage.25 pages. We examine the effect of background risk in the standard two-state.2011. . We introduce a parametric class of composite probability distortions that can be combined to converge to a target survival function. I consider here an alternative approach related to the direction of these attitudes (i.Tan.8 (access via Athens login http://www. rather than a research or survey paper. prudence and temperance) are becoming important both in theoretical and empirical work. I calibrate both effects on relative risk aversion and prudence. Success for Solvency II. the optimal incentive scheme becomes flatter if the agent is weakly prudent. we establish conditions for the existence of reinsurance.net/) Doherty. . These distortions respect analytic invertibility and stability. Attitudes towards income risk in the presence of quantity constraints.22 pages. we show how the optimal carbon tax responds to an increase in risk. [RKN: 71228] Geneva Risk and Insurance Review (2013) 38 (1) : 1-22. Alexis. Schroyen. Chengguo (2012). Didier (2012). This is a talk.27 pages. An appropriate use of reinsurance could reduce the underwriting risk of an insurer and thereby enhance its value. The quest for optimal reinsurance design has remained an interesting problem among insurers. Thistle. Solvency II. While the literature has mainly focused its attention on the intensity of such risk attitudes (e. [RKN: 74944] Geneva Risk and Insurance Review (2012) 37 (1) : 109-140. Economists often argue in favour of market discipline as a means to distribute resources effectively and efficiently. Is there market discipline in the European insurance industry? : An analysis of the German insurance market. Depending on the risk measure's level of confidence.15 pages. Some applications to survival data bring results for catastrophic event impact modelling. how and what's next? : EGRIE Keynote Address.org/10. Beyond risk aversion: Why. Louis (2012). I first show how this impact decomposes into a local curvature effect and an endogenously changing risk aversion/prudence effect. we suggest a prospective mortality simulation model that comes naturally from the above analysis. However. [RKN: 70261] Geneva Risk and Insurance Review (2012) 37 (2) : 156-179. In a first step.12 pages. Our research indicates that the German insurance market demonstrates the existence of such discipline. Rullière. This paper studies the effects of an increase in risk on welfare and optimal policies in a stochastic dynamic model of global pollution. [RKN: 74133] Geneva Risk and Insurance Review (2013) 38 (2) : 115-126. and academicians. Quentin.e. is dependent in part on the strength of influence found in market discipline. With environmental background risk. The calibrations show that commitments to durable goods have large effects on attitudes towards risk. we focus on the case of a single decision maker. therefore. which are shown to be relevant in many actuarial fields. Fred (2013). becoming full time unemployed on a 60 per cent unemployment benefit significantly raises risk aversion and prudence. When it is optimal to cede the insurer's risk. the optimal reinsurance design could be in the form of pure stop-loss reinsurance. [RKN: 74136] Geneva Risk and Insurance Review (2013) 38 (2) : 183-209.doi. or a combination of stop-loss and quota-share reinsurance. Risk attitudes other than risk aversion (e. I trace out how quantity constraints on markets impact on relative risk aversion and prudence. expected wages always rise and the incentive scheme is flatter if the agent's preferences satisfy weak decreasing absolute risk aversion. explicit solutions are derived. Kompas. Very little of what I say will be original. The paper is not exhaustive of references and many of my arguments have been treated elsewhere. Bienvenue. Tom. We also obtain accurate parametric representations of the mortality trend over years. although further research is needed to evaluate whether or not enhancements to market discipline within the European market are warranted. but I wish to stimulate discussion on a set of issues that arise from the nature of risk and that I consider problematic to our profession. seems to be following an appropriate path.28 pages. reinsurers. has the advantage of exploiting the classical tradeoff between risk and reward. Enhancing insurer value using reinsurance and value-at-risk criterion. I suspect few will have approached the issues from the same starting point and assembled them in the same way. Paul D (2013). DOI: http://dx. Weng. James A. Neil (2013). Increase in risk and its effects on welfare and optimal policies in a dynamic setting : The case of global pollution. . the European insurance regulatory scheme currently being implemented. Ngo Van (2014). Using a simple model with only one state variable and one control variable. quota-share reinsurance. The proposed optimal reinsurance model. and the expected profit guaranteed for the insurer. including hints for initialisation. Eling. With contractual background risk. Under the additional assumptions that the reinsurance premium is determined by the expectation premium principle and the ceded loss function is confined to a class of increasing and convex functions. the concepts of absolute prudence and absolute temperance). These same arguments likely influence decision-makers as they incorporate market discipline as the third pillar of Solvency II. [RKN: 70262] Geneva Risk and Insurance Review (2012) 37 (2) : 180-207. . Schmit. then. therefore. Grafton. insurance market. And while small wedges between realised and desired levels of labour supply have only moderate effects. Long. It is found that the 15 . Background risk in the Principal-Agent Model. Joan T (2012). [RKN: 70260] Geneva Risk and Insurance Review (2012) 37 (2) : 141-155. . Iterative adjustment of survival functions by composed probability distortion. [RKN: 44987] Insurance: Mathematics & Economics (2012) 50 (1) : 26-42. Marcus C. We use a canonical insurance market screening model to survey and to extend the risk classification literature. Taizhong (2012). The excess of a set of portfolios is defined as the expected loss of that set of portfolios in excess of the amount of risk capital allocated to them. we develop a model supporting the so-called square-root formula used in Solvency II to aggregate the modular life SCR. We provide a unified framework for analysing the economic consequences of legalised vs banned risk classification. and that it satisfies some desirable properties. We also consider the moments of the number of claims until ruin and illustrate our results in the case of exponentially distributed individual claims. Internet URL: http://www.org/10. It requires the solution of a host of delicate convergence problems. which legislated restrictions on risk classification could provide. the inferior one.net Huang. [RKN: 45637] Insurance: Mathematics & Economics (2012) 50 (3) : 338-345. Economic effects of risk classification bans. We show that this allocation rule yields a unique allocation. Internet URL: http://www. based on German population data. The notion of weak convergence is insufficient for such an extension.net/) Christiansen.third derivative of the decay function of the stock of pollution may play a decisive role. Interestingly. Georges. In a second step.net Dickson. Dorina (2012).2011. Specifically. We find that an increase in ambiguity aversion will decrease (increase) the optimal effort when the cost of effort is non-monetary. some further intrinsic properties of the location independent risk order are investigated. The joint distribution of the time to ruin and the number of claims until ruin in the classical risk model. The Solvency II square-root formula for systematic biometric risk.openathens.openathens. and thereby to reduce asymmetric information. we remove the gap in the proof of the main result in Ryan (2006).openathens.003 (access via Athens login http://www. Dionne. it is shown that the QIS correlation matrix is highly questionable. through potentially costly tests. we determine the capital allocation that minimizes the excesses of sets of portfolios in a lexicographical sense. we examine whether a more ambiguity-averse individual will invest in more effort to shift her initial starting wealth distribution toward a better target distribution. to compute the corresponding premiums. David C M (2012). . Available via Athens: ScienceDirect In this paper. DOI: http://dx. we can obtain expressions similar to the square-root formula in Solvency II by means of limited expansions around the best estimate. Rothschild. INSURANCE: MATHEMATICS & ECONOMICS van Gulick. To this end.38 pages. de Waegenaere. Denuit.insmatheco.net 16 . higher-order risk attitude and optimal effort. Michel M. [RKN: 74456] Geneva Risk and Insurance Review (2014) 39 (2) : 184-221. the effect depends on whether the individual would make more effort when the target (starting) distribution is the preferred distribution than the target (starting) distributions. Available via Athens: ScienceDirect We extend the characterization of the left-monotone risk aversion developed by Ryan (2006) to the case of unbounded random variables. When the cost of effort is monetary. Available via Athens: ScienceDirect In this paper. It may also have undesirable equity consequences and undermine the implicit insurance against reclassification risk. Available via Athens: ScienceDirect We use probabilistic arguments to derive an expression for the joint density of the time to ruin and the number of claims until ruin in the classical risk model.doi. We also show that the allocation can be determined by solving a series of linear programming problems. and this mitigates the tragedy of the commons.openathens. We show how strategic interactions complicate the task of evaluating the effects of an increase in risk. by either side of the market. The underlying idea is that large excesses are undesirable. Characterization of left-monotone risk aversion in the RDEU model. in a dynamic model of the tragedy of the commons. Tiantian. Casey G (2014). Permitting risk classification may reduce informational asymmetry-induced adverse selection and improve insurance market efficiency. Describing the insurance policy by a Markov jump process. Available via Athens: ScienceDirect In this paper we propose a new rule to allocate risk capital to portfolios or divisions within a firm. Excess based allocation of risk capital. [RKN: 45636] Insurance: Mathematics & Economics (2012) 50 (3) : 334-337. both in static-information environments and in environments in which additional information can be learned. Ambiguity aversion. We assume that the individual has ambiguous beliefs regarding two target (starting) distributions and that one distribution is preferred to the other. Hu. Finally. Anja. Henk (2012). Moreover. [RKN: 45644] Insurance: Mathematics & Economics (2012) 50 (3) : 413-422. From this we obtain a general expression for the probability function of the number of claims until ruin. Internet URL: http://www. we find that an increase in risk can increase welfare even though all agents are risk averse. Lazar. we briefly discuss joint distributions involving the surplus prior to ruin and deficit at ruin.1016/j. Risk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims. The reason is that higher risk can cause agents to be more conservative. we investigate the extent to which Kimball’s approach may be extended to the case of stochastic dynamic games. Internet URL: http://www. Norde.net Mao. Even if the square-root formula can be supported by theoretical considerations. and therefore the goal is to determine the allocation for which the largest excess is as small as possible. We further characterize the individual’s higher-order risk preferences to examine the sufficient conditions. Numerical illustrations are given.openathens. Gerwald. [RKN: 45599] Insurance: Mathematics & Economics (2012) 50 (2) : 257-265. The characterization of the right-monotone risk aversion for unbounded random variables is also mentioned. Rachel J (2012).09. 1016/j. We study its relationships with other criteria and provide some characterizations that highlight the role of this new criterion in the context of comparisons of risks.Guerra. We illustrate our results by computing bounds on the price of a floating retention insurance contract. Comparison of risks based on the expected proportional shortfall. We only consider the case in which the risk variable belongs to the max-domain of attraction of an extreme value distribution. Medaglia.net Denuit. all agents hand their individual losses over to a pool and each of them is liable for the conditional expectation of his own loss given the total loss of the pool. Computing bounds on the expected payoff of Alternative Risk Transfer products. and mutually exclusive losses. Luis F (2012).org/10. Second. Pricing of these complex products usually requires tailor-made complex valuation methods that combine derivative pricing and actuarial science techniques for each product. DOI: http://dx. we first reestablish the first-order expansions of the Haezendonck-Goovaerts risk measure for extreme risks with a power Young function in Q Tang and F Yang (2012) [On the Haezendonck-Goovaerts risk measure for extreme risks. In particular. this paper argues that risk sharing is always beneficial (with respect to convex order or second degree stochastic dominance) provided the risk-averse agents share the total losses appropriately (whatever the distribution of the losses. their correlation structure and individual degrees of risk aversion).1016/j. Available via Athens: ScienceDirect In this paper. Hu. If all the conditional expectations involved are non-decreasing functions of the total loss then the conditional mean risk sharing is shown to be Pareto-optimal.org/10. and a catastrophe equity put (CatEPut) option. Jose M. Michel. Explicit expressions for the individual contributions to the pool are derived in some special cases of interest: independent and identically distributed losses. multi-trigger products where the payment of benefits depends upon the occurrence of several events. Convex order and comonotonic conditional mean risk sharing. Available via Athens: ScienceDirect Although controversial from the theoretical point of view. Such products. Available via Athens: ScienceDirect The demand for integrated risk management solutions and the need for new sources of capital have led to the development of innovative risk management products that mix the characteristics of traditional insurance and financial products. Ruiz. Available via Athens: ScienceDirect The Haezendonck–Goovaerts risk measure is based on the premium calculation principle induced by an Orlicz norm.2012. DOI: http://dx.1016/j.net/) Mao. at least for the purpose of risk-transfer decisions.04.doi. M L (2012).org/10. we consider a new criterion to compare risks based on the notion of expected proportional shortfall. which is defined via an increasing and convex Young function and a parameter q[symbol](0. Taizhong (2012).insmatheco.1) representing the confidence level. We argue that this is one further argument against the use of quantile risk measures. [RKN: 44785] Insurance: Mathematics & Economics (2012) 51(2) : 265-270. [RKN: 45648] Insurance: Mathematics & Economics (2012) 50 (3) : 446-461.insmatheco. conditions under which this payment rule leads to a comonotonic risk sharing are examined. Dhaene. We call this risk sharing mechanism the conditional mean risk sharing.net/) 17 . In this paper. Sordo.03. DOI: http://dx.doi.doi.insmatheco. This criterion is useful for comparing risks of different nature and does not depend on the base currency. José F.003 (access via Athens login http://www. Jan (2012).insmatheco. [RKN: 44788] Insurance: Mathematics & Economics (2012) 51(2) : 292-302. These bounds are useful when the structure of the product is too complex to develop analytical or simulation valuation methods. In particular.1016/j. quantile risk measures are widely used by institutions and regulators. Are quantile risk measures suitable for risk-transfer decisions?. 50 (2012). Insurance: Mathematics and Economics. and insurance linked securities that place insurance risks in the capital market. Manuel. We show that the use of measures like Value at Risk or Conditional Tail Expectation as optimization criteria for insurance or reinsurance leads to treaties that are not enforceable and/or are clearly bad for the cedent. Internet URL: http://www. or when the scarcity of data makes it difficult to make strong distributional assumptions on the risk factors. Zuluaga. Second-order properties of the Haezendonck-Goovaerts risk measure for extreme risks.openathens. [RKN: 44786] Insurance: Mathematics & Economics (2012) 51(2) : 271-281. Andrés M.003 (access via Athens login http://www. Centeno. Felix. pp. [RKN: 44792] Insurance: Mathematics & Economics (2012) 51(2) : 333-343. Specifically. usually referred as Alternative Risk Transfer (ART) products include: (re)insurance contracts that bundle several risks under a single policy. we develop a general optimization-based method that computes upper and lower price bounds for different ART products using market data and possibly expert information about the underlying risk factors.2012. We present here an alternative methodology to compute bounds on the price of ART products when there is limited information on the distribution of the underlying risk factors. Pinar.doi.net/) Belzunce.012 (access via Athens login http://www.openathens.2012.05.openathens. Andrés L. as well as strong distributional assumptions on the ART’s underlying risk factors. we are interested in the calculation of the second-order expansions of the Haezendonck-Goovaerts risk measure as q[symbol]1.06. 217–227] in terms of the tail quantile function. DOI: http://dx.005 (access via Athens login http://www. comonotonic losses. assuming premium calculation principles of various types.org/10. Miguel A (2012).openathens. we use a unified approach to find the optimal treaties for an agent who seeks to minimize one of these measures.net/) Villegas. Available via Athens: ScienceDirect Using a standard reduction argument based on conditional expectations.2012. In this paper.openathens. Tiantian. insmatheco.org/10. Runhuan.org/10. Available via Athens: ScienceDirect We investigate properties of a version of tail comonotonicity that can be applied to absolutely continuous distributions.insmatheco. LiLi (2012). Furthermore. DOI: http://dx.06. and give several methods for constructions of multivariate distributions with tail comonotonicity or strongest tail dependence.1016/j. this requirement is proved to be necessary. We provide a hypothetical example of CVA computation for an interest-rate swap with downgrade-triggered termination clause. DOI: http://dx.doi. What is more. Volkmer. Wenhua.A.doi. an extension to the case of random walk is also included. DOI: http://dx. Tiantian.07. Available via Athens: ScienceDirect The quantification of diversification benefits due to risk aggregation has received more attention in the recent literature. A necessary condition of optimal deductible is given under some mild conditions.09.net/) Mao. which in turn lead to very efficient and accurate algorithms for computing CVA. Some examples are given. Available via Athens: ScienceDirect In this paper we try to derive an optimal insurance treaty when the insured faces multiple sources of risk. DOI: http://dx. Second-order expansions of the risk concentration based on CTE [Conditional Tail Expectation]. Archimedean copulas as mixtures of powers.Feng.net/) Hua.openathens.org/10.insmatheco. [RKN: 44866] Insurance: Mathematics & Economics (2012) 51(2) : 462-471.doi. Harry (2012). We compare our model with the classical one without background risk.06. and scale mixtures of a non-negative random vector with the mixing distribution having slowly varying tails.002 (access via Athens login http://www.net/) Lu.1016/j. 75. Hu. Available via Athens: ScienceDirect Downgrade-triggered termination clause is a recent innovation in credit risk management to control counterparty credit risk.insmatheco. Stein’s lemma for elliptical random vectors. Based on the previous results of Landsman and Nešlehová (2008) [Z.004 (access via Athens login http://www. we establish the second order asymptotics of ruin probabilities of a renewal risk model under the condition that the equilibrium distribution of claim sizes belongs to a rather general heavy-tailed distribution subclass—the class of second order subexponential distributions with finite mean. the non-defaulting party may still suffer losses in case that the other party defaults without triggering the termination clause prior to default. Jianxi (2012). and asymptotic additivity of risk measures. Available via Athens: ScienceDirect In this paper. constructions.2012.1016/j. Hashorva.07. Nešlehová (2008). 912-927] and Hamada and Valdez (2008) [M. Joe.007 (access via Athens login http://www. Moreover. [RKN: 44800] Insurance: Mathematics & Economics (2012) 51(2) : 409-421. Lei. Liu. 99. J. We show that the deductible insurance is optimal when the insurable and uninsurable risks are positively dependent or independent within the expected utility framework. Meng. the authors show in this paper that for conditionally multivariate elliptical risks the calculation of the Bayes premium is closely related to the Brown identity and the celebrated Stein’s lemma. we establish second-order expansions of the risk concentration based on the risk measure of conditional tail expectation [CTE] for a portfolio of n independent and identically distributed loss random variables. the shifts of optimal deductible and expected utility by modifications of the dependence structure and the marginal are analyzed.doi.006 (access via Athens login http://www. Lv. [RKN: 44864] Insurance: Mathematics & Economics (2012) 51(2) : 449-456. lead to a tail comonotonic dependence structure.2012. DOI: http://dx.insmatheco.07. Second order asymptotics for ruin probabilities in a renewal risk model with heavy-tailed claims.openathens.net/) I 18 .org/10. LePing.1016/j. In this paper.net/) Kume. DOI: http://dx.2012.openathens. In our framework the prior distribution is allowed to be very general requiring only that its probability density function satisfies some smoothness conditions.org/10. At the heart of the valuation of credit risk adjustment (CVA) is the computation of the probability of default.openathens. CAPM and option pricing with elliptically contoured distributions.insmatheco. Hans W (2012). Journal of Risk & Insurance. Valdez (2008). Calculation of Bayes premium for conditional elliptical risks.1016/j. Alfred.2012.2012.001 (access via Athens login http://www. The key tools are the theory of second-order regular variation and the theory of second-order subexponentiality. we prove the asymptotic additivity property of Value at Risk and Conditional Tail Expectation. Modeling credit value adjustment with downgrade-triggered termination clause using a ruin theoretic approach. 387-409]. [RKN: 44869] Insurance: Mathematics & Economics (2012) 51(2) : 472-479. Hamada. [RKN: 44861] Insurance: Mathematics & Economics (2012) 51(2) : 422-429. For random variables that are in the maximum domain of attraction of either Fréchet or Gumbel. Optimal insurance under multiple sources of risk with positive dependence.011 (access via Athens login http://www. a rather general sufficient condition on the claim size distribution itself is presented.2012. Taizhong (2012). Furthermore.net/) Lin. Landsman. It allows one party of an over-the-counter derivative to close off its position at marked-to-market price when the other party’s credit rating downgrades to an agreed alarming level. E.doi. The paper also contributes to ruin theory by presenting some new results on finite-time ruin probabilities in a jump-diffusion risk model.1016/j. Available via Athens: ScienceDirect In this paper the authors discuss the calculation of the Bayes premium for conditionally elliptical multivariate risks.org/10. Although the default risk is significantly reduced. Enkelejd (2012).doi. We employ techniques from ruin theory and complex analysis to provide solutions for probabilities of default. ZhiYi. [RKN: 43681] Insurance: Mathematics & Economics (2012) 51(3) : 632-635. Tail comonotonicity: properties. The underlying risk model in question is an extension of the commercially available KMV–Merton model and hence can be easily implemented.openathens.openathens. Journal of Multivariate Analysis. doi.2012.008 (access via Athens login http://www. It is often natural to consider defective or killed stochastic processes. (2011a) [H Albrecher.insmatheco. Woo.2012.2012.doi.insmatheco. We define Tu. [RKN: 43692] Insurance: Mathematics & Economics (2013) 52(1) : 114-123. This is in contrast to Albrecher et al. M Martin. regime-switching.g.openathens.z.org/10. Under the assumption that the time intervals between dividend decisions are distributed. and the amount by which the surplus is below z. dividend decisions are only made periodically along with the publication of its books. [RKN: 43691] Insurance: Mathematics & Economics (2013) 52(1) : 98-113. The generalized Gerber–Shiu function is defined on three random variables: the first time that the surplus drops below z from u. North American Actuarial Journal.1016/j.. where exponential distributions are replaced by phase-type distributions. we can insure it: an application to longevity risk management. Tu.doi. Specifically. 2008) [E C K Cheung (2008).11. E S W Shiu (2007).insmatheco. Lu. Stentoft. In this paper. Cheung. such as pharmaceutical. Various observations continue to hold true for this wider class of processes yielding more general results in a transparent way without additional effort. 41(2): 645–672]. [RKN: 45606] Insurance: Mathematics & Economics (2013) 52(1) : 29-34. Our results show that taking the optionality into consideration is important from a pricing perspective.openathens. These are then solved with the help of probabilistic arguments. which is appropriate for modeling the surplus of companies with deterministic expenses and stochastic gains. E C K Cheung and S Thonhauser (2011). Using the concept of stochastic flows. In this paper. namely.10. matrix-valued. Tak Kuen (2013). [RKN: 43694] Insurance: Mathematics & Economics (2013) 52(2) : 127-134.006 (access via Athens login http://www. We also show how to extend these results to modulated risk processes.003 (access via Athens login http://www. Using these results.1016/j. 12(3): 336–340] where dividend decisions are made continuously. we derive an exponential affine form of the longevity bond price in the proposed joint stochastic interest rate and mortality models. jump-diffusion models are used to describe stochastic movements of short-term interest rate and force of mortality. Shuanming.1016/j. Jevgenijs (2013).openathens. 2007 [B Avanzi. Wong.openathens. Our framework is essentially independent of the assumed underlying dynamics and the choice of method for risk neutralization and relies only on the ability to simulate from the risk neutral process. An explicit expression for the Gerber-Shiu function when u=z is obtained when the credit and debit interest rates are equal.net/) Li. Yi (2013).2012. In particular. DOI: http://dx.net/) Boyer. Discussion on A Badescu and D Landriault’s Recursive calculation of the dividend moments in a multi-threshold risk model. Eric C K.1016/j.net/) Avanzi. mortality risk and the risk due to structural changes in economic and environmental conditions.11. petroleum or commission-based companies. Optimal dividends in the dual model.insmatheco. [RKN: 45607] Insurance: Mathematics & Economics (2013) 52(1) : 35-45.1016/j. Longevity bond pricing under stochastic interest rate and mortality with regime-switching. who introduced periodic dividend payments in the Cramér-Lundberg surplus model.. Dividend strategies for this model that can be found in the literature include the barrier strategy (e. We provide an application to derivatives on the survivor index when the underlying dynamics are from a Lee-Carter model.openathens.10.009 (access via Athens login http://www. We develop a flexible model to value longevity bonds which incorporates several important sources of risk. In particular. We consider the dual model. If we can simulate it. In particular. and explicit results for the Gerber-Shiu function under exponential claims are then obtained.z. In addition.org/10. we investigate the probability that the surplus reaches an upper level without dropping below a lower level and the distribution of the maximum severity of ruin. This paper proposes a unified framework for measuring and managing longevity risk. Insurance: Mathematics and Economics. Bernard.org/10.net/) Shen. On a periodic dividend barrier strategy in the dual model with continuous monitoring of solvency. Benjamin. While in practice the financial position of a company is typically monitored frequently. H U Gerber.doi. but still allow ruin to occur at any time (as soon as the surplus is exhausted). DOI: http://dx. we develop a flexible framework for valuing survivor derivatives like forwards. albeit with periodic ruin opportunities as well.z to be the first time that the surplus process drops below a certain level z from the initial surplus u(>z).org/10. Cheung. 41(1): 111–123]) and the threshold strategy (e. some numerical studies are presented. which aim at illustrating how our assumptions about dividend payments and ruin occurrence compare with those of the classical barrier strategy.. Jae-Kyung (2013). we derive integro-differential equations for the Laplace transform of the time to ruin and the expected present value of dividends until ruin. Siu. Yang. and swaps.005 (access via Athens login http://www. this observation is used to identify the triple transform in a simple way when either claims or interarrivals are exponential. we introduce a dividend barrier strategy whereby dividend decisions are made only periodically. [This abstract contains mathematical notation. ordinary differential equations.2012. the surplus prior to Tu. we review and streamline some basic exit identities for defective Lévy and Markov additive processes. Avanzi et al. Please access article online to view mathematical notation shown in the abstract.doi. DOI: http://dx.org/10. We illustrate this point with an example from risk theory by showing that the ruin probability for a defective risk process can be seen as a triple transform of various quantities of interest on the event of ruin. Lars (2013).insmatheco.net/) 19 . as well as options both of European and American style.g. We also provide a recursive algorithm to compute these quantities. Markov.10. interest rate risk.] DOI: http://dx. Randomized observation periods for the compound Poisson risk model: dividends. The time of ruin and the time of absolute ruin are special cases of this stopping time. A note on killing with applications in risk theory. Finally. On the generalized Gerber-Shiu function for surplus processes with interest. These models capture jumps in short rate and mortality rate and the impacts of economic and environmental fundamentals on their movements over time. a representation for the exponential affine form of the longevity bond price is obtained in terms of fundamental matrix solutions of linear. we study the generalized expected discounted penalty (Gerber-Shiu) function in a risk process with credit and debit interests.vanovs. ASTIN Bulletin. DOI: http://dx. insmatheco. Ramón. more particularly.org/10.insmatheco. time consistency can be examined from two aspects: dynamic risk measure and optimal investment policy. Since the variance operator does not satisfy the smoothing property. Risky targets and effort.2012. we first study the relationship between the time consistency of dynamic risk measure and the time consistency of optimal investment policy and obtain the following conclusions: if the dynamic risk mapping is time consistent and monotone.insmatheco.005 (access via Athens login http://www. Finally. Pauline.2013. Henri (2013). Distortion risk measures summarize the risk of a loss distribution by means of a single value. such as those arising from natural catastrophes.net/) Chuang. they face multiple sources of risk: first the risk of failure and second the noise that surrounds either the target or the initial situation.11. Louis. Systemic risk trade-offs and option prices.008 (access via Athens login http://www. Large systematic risks. Rachel J. DOI: http://dx.org/10. in this paper we consider a tractable multivariate risk structure which includes the Sarmanov dependence structure as a special case. [RKN: 43956] Insurance: Mathematics & Economics (2013) 52(3) : 465-468. Bolancé. Two new indices for financial diversity are proposed. The proposed method consists of a double transformation kernel estimation. The approach is based on transformed kernel estimation of the cumulative distribution function (cdf).org/10. The connection between distortion risk measures and ordered weighted averaging operators. 2011].org/10.2013. [RKN: 43990] Insurance: Mathematics & Economics (2013) 52(2) : 411-420. To overcome this shortcoming. we propose the notation of a separable expected conditional mapping and then construct a time consistent dynamic mean–variance model. The second evaluates how fast correlation with a stock rises as the stock falls. the combination of reinsurance and capital market solutions (insurance-linked securities) has received an increasing interest. We derive several asymptotic results for both the sum and the product of such risk and then present three applications related to actuarial mathematics. DOI: http://dx. for two cases with or without a riskless asset. The procedure is useful for large data sets and improves quantile estimation compared to other methods in heavy tailed distributions. We focus on the impact of regulation on risk transfer. Huang. The theoretical results are illustrated in an example and the degree of orness concept is discussed. Guo. Loubergé.openathens. DOI: http://dx.net/) Madan.openathens.doi. then the time consistency requirements of an optimal investment policy will no longer be satisfied. Miguel (2013). O-Chia. The finite-time ruin probability in the presence of dependent extremal insurance and financial risks. Montserrat. The CRI also declined consistently for AIG and LEH prior to their bankruptcies indicating that the market was active in decorrelating itself from these firms.doi. The bandwidth can accommodate to the given quantile level.org/10.1016/j.insmatheco. The first is aggregative and evaluates distance from a single factor driving returns.008 (access via Athens login http://www. [RKN: 43695] Insurance: Mathematics & Economics (2013) 52(2) : 135-144.1016/j.openathens. In this paper.org/10. Optimal investment policy in the time consistent mean-variance formulation. have become a highly relevant issue for the insurance industry.net/) 20 . Our results show that different regulatory prescriptions will lead to quite different results in terms of global risk-sharing. Implementation is straightforward and R programs are available. numerical results illustrate the flexibility and superiority of our multi-period mean–variance model and the optimal investment policy over those in the literature. In this paper. a reinsurer and a financial investor. we examine how effort is adjusted to account for changes in this risky environment. Zhiping.openathens.1016/j.net/) Alemany. [RKN: 43981] Insurance: Mathematics & Economics (2013) 52(2) : 312-319. We show that these concepts can be derived from the Choquet integral. the Ordered Weighted Averaging (OWA) and Weighted Ordered Weighted Averaging (WOWA) operators are used to aggregate a large number of fuzzy rules into a single value.doi.doi.003 (access via Athens login http://www.openathens. Tzeng. DOI: http://dx.doi.1016/j. Guillén. [RKN: 43973] Insurance: Mathematics & Economics (2013) 52(2) : 222-230. [RKN: 43976] Insurance: Mathematics & Economics (2013) 52(2) : 255-262.org/10.008 (access via Athens login http://www. This connection offers a new interpretation of distortion risk measures and.1016/j.1016/j.12. Larry Y (2013).1016/j. DOI: http://dx. if the dynamic risk mapping is time consistent but not monotone. We derive optimal bandwidth selection methods that have a direct expression for the smoothing parameter. With motivation from Tang et al. Li. Moreover. by differentiating reinsurance and securitisation in terms of their impact on reserve requirements. in particular. [RKN: 43696] Insurance: Mathematics & Economics (2013) 52(2) : 145-156. Reinsurance and securitisation of life insurance risk: the impact of regulatory constraints. We prove that the optimal investment policy derived from our model is time consistent.net/) Chen. and then the mathematical relationship between distortion risk measures and the OWA and WOWA operators for discrete and finite random variables is presented. As a necessary requirement for multi-period risk measure.007 (access via Athens login http://www.2012. Jaume. The CRI [correlation response index] is also compared with coVaR [conditional value at risk]. then the corresponding optimal investment policy satisfies the time consistency requirements. have risen in prominence at a societal level and. Enkelejd (2013).openathens. Extremes and products of multivariate AC-product risks. Yang. we obtain the time consistent analytical optimal investment policy and the mean–variance efficient frontier of the new model with the self-financing constraint. however. Z Yuan. climatic changes and uncertain trends in longevity increases. Schoutens.insmatheco.11. Both measures are here risk neutral. (2011) [Q Tang. making a distinction between systematic and idiosyncratic risks.insmatheco. Guillén.2012. Value-at-Risk and Tail Value-at-Risk can be understood from an aggregation operator perspective. José M. we develop a general model of optimal risk-sharing among three representative agents — an insurer.insmatheco. Merigó. Dilip B. Wim (2013). When decision makers invest in effort to reach their targets. Ju-e (2013). Santolino. Catalina.2012.02. Gang. In this paper.02. In fuzzy systems. the optimal investment policy derived from the existing multi-period mean–variance model is not time consistent. DOI: http://dx. R Vernic.doi.2013. Eeckhoudt.net/) Belles-Sampera. These measures are negatively related and so focus attention on different aspects of systemic risk.openathens. Unlike the coVaR focused on expected losses the CRI measures the risks of increased correlation and lack of diversity in activities. A method to estimate an extreme quantile that requires no distributional assumptions is presented.net/) Yang. A nonparametric approach to calculating value-at-risk. Against this background.doi.12.004 (access via Athens login http://www. Hashorva. DOI: http://dx.01. Montserrat (2013).Barrieu. Runhuan (2013). Gerber-Shiu analysis with a generalized penalty function. [RKN: 46606] Insurance: Mathematics & Economics (2013) 53(1) : 64-73. Simulation studies are also given to show the finite sample performance of our estimator. [RKN: 43957] Insurance: Mathematics & Economics (2013) 52(3) : 469-476.2013. Nonparametric estimate of the ruin probability in a pure-jump Lévy risk model.net/) Dickson.2013.1016/j. Michael (2013). 41 (2) (2009): 495-522]. especially for older ages. We consider in this paper a general two-sided jump-diffusion risk model that allows for risky investments as well as for correlation between the two Brownian motions driving insurance risk and investment return. and thus obtain a closed-form pricing formula for a single-name credit default swap (CDS).2013.net/) Hao.Refer to online abstract for correct algebraic notation. Wen. Swedish mortality data is used to assess 2. This motivates us to investigate an even more general function ZZ from which both HH and [Phi] can be retrieved as special cases.net/)/ Cheung. we propose a nonparametric estimator of ruin probability in a Lévy risk model. Scandinavian Actuarial Journal. Finite time ruin problems for the Erlang(2) risk model. Sherris. DOI: http://dx.doi.insmatheco. The multiple risk factors allow for applications in pricing and more general risk management problems. A unified analysis of claim costs up to ruin in a Markovian arrival risk model.net/)/ 21 . Available via Athens: ScienceDirect This paper proposes and calibrates a consistent multi-factor affine term structure mortality model for longevity risk applications.] DOI: http://dx. A state-space representation is used to estimate parameters for the model with the Kalman filter. Li. Insurance: Mathematics & Economics (2010) 46: 12-18] DOI: http://dx.org/10. Some examples are given for special cases. Yang. [D C M Dickson.openathens. it is shown that ZZ satisfies a Markov renewal equation and hence admits a general solution. The estimator is constructed based on the Pollaczek-Khinchin formula and Fourier transform. Using a matrix version of Dickson-Hipp operator (Feng. 2010(3) (2010): 185-199] is contained in HH. We show that this model is appropriate for fitting historical mortality rates.insmatheco. it explains why the par CDS credit spread is not negligible when the maturity becomes short. Importantly. In particular. J-K Woo.Yin. the moments and moment-generating function of the total discounted dividends until ruin are discussed.insmatheco.openathens. Chuancun. the minimum and maximum surplus levels before ruin are given as well. Available via Athens: ScienceDirect -. David C M. Shuanming (2013). it does not appear that the Gerber-Shiu function [Phi] with a generalized penalty function which additionally depends on the surplus level immediately after the second last claim before ruin (Cheung et al.1016/j.net/)/ Zhang. Without traded mortality instruments the choice of risk-neutral measure is not unique and we fit it to observed historical mortality rates in our framework. We show that the risk-neutral parameters can be calibrated and are relatively insensitive of the historical period chosen. Available via Athens: ScienceDirect In this paper. We first introduce the model and then find the integro-differential equations satisfied by the Gerber–Shiu functions as well as the expected discounted penalty functions at ruin caused by a claim or by oscillation.=0} is modeled by a pure-jump Lévy process.013 (access via Athens login http://www.04.org/10.openathens. Hailiang (2013). Li. Eric C K. as a generalization of the classical Gerber-Shiu function.007 (access via Athens login http://www. Yasutaka (2013). Bootstrapping is used to derive parameter estimate distributions and residual analysis is used to confirm model fit.014 (access via Athens login http://www. Consistent dynamic affine mortality models for longevity risk applications. Craig.doi.2013.and 3-factor implementations of the model.1016/j. Xuan.openathens. D Landriault.org/10. Available via Athens: ScienceDirect We study the first-passage time over a fixed threshold for a pure-jump subordinator with negative drift. Yuzhen (2013). DOI: http://dx.2013. 2009b) [R Feng.003 (access via Athens login http://www.1016/j. 2010a) [ECK Cheung.. such as all moments of the discounted claim costs until ruin.doi. We then use this formula to calculate finite-time survival probabilities in a structural model for credit risk.1016/j. Xuemiao. DOI: http://dx. Schweizerische Aktuarvereinigung Mitteilungen. 2009 (1-2) (2009): 71-87]. [RKN: 46603] Insurance: Mathematics & Economics (2013) 53(1) : 24-35.2013.openathens. A matrix operator approach to the analysis of ruin-related quantities in the phase-type renewal risk model.insmatheco. The distributions of the time to reach a given level and the duration of negative surplus in the Erlang(2) risk model.=0}X={Xt. This pricing formula is well calibrated on market CDS quotes. An extension of Paulsen-Gjessing’s risk model with stochastic return on investments. GE Willmot (2009).001 (access via Athens login http://www. We also study the dividend problem for the threshold and barrier strategies. [RKN: 46602] Insurance: Mathematics & Economics (2013) 53(1) : 14-23. GE Willmot. DOI: http://dx.doi.04. Applications to other related problems such as the matrix scale function. Advances in Applied Probability.004 (access via Athens login http://www.org/10.04. We use the Heath-Jarrow-Morton forward rate framework to verify consistency and to simulate cohort survivor curves under the risk-neutral measure.1016/j. Finite-time survival probability and credit default swaps pricing under geometric Lévy markets. A measurement error variance is included for each age to capture the effect of sample population size. A 3-factor model specification is shown to provide a good fit to the observed survival curves. [RKN: 43959] Insurance: Mathematics & Economics (2013) 52(3) : 490-497. Shimizu.openathens. Feng. Assume that high-frequency observed data on XX are available. The aggregate claims process X={Xt. We study the distributions of [1] the first time that the surplus reaches a given level and [2] the duration of negative surplus in a Sparre Andersen risk process with the inter-claim times being Erlang(2) distributed.02.04. (2009) [J Cai. These distributions can be obtained through the inversion of Laplace transforms using the inversion relationship for the Erlang(2) risk model given by Dickson and Li (2010).org/10.net/)/ Blackburn.org/10.insmatheco.insmatheco. Risk bounds as well as a data-driven cut-off selection methodology are presented.doi. [This abstract contains mathematical notation. the framework provides consistent future survival curves with the same parametric form as the initial curve in the risk-neutral measure. R Feng.02. Li. We obtain a closed-form formula for its survival function in terms of marginal density functions of the subordinator. However. It is shown that the expected present value of total operating costs up to default HH. [RKN: 46609] Insurance: Mathematics & Economics (2013) 53(1) : 98-109.doi. S. contains more non-trivial quantities than those covered in Cai et al. On the total discounted operating costs up to default and its applications. An insurance risk model where claims follow a Markovian arrival process (MArP) is considered in this paper. Zhimin. 05. Montserrat. Characterizing a comonotonic random vector by the distribution of the sum of its components.org/10. Probabilistic arguments are applied to derive defective renewal equations satisfied by the moments of discounted aggregate claim costs until ruin. The relationship between the tail convex order and risk measures along with conditions under which the additivity of risk measures is sufficient for upper comonotonicity is also explored. In the second part.org/10. Approximations of the tail probability of the product of dependent extremal random variables and applications.Y1. while the usual discounted density contains a discount factor with respect to the time of ruin. An explicit asymptotic formula is established for the tail probability of the product when XX belongs to the Fréchet. some transformations of a multivariate distribution which permit to generate new families of multivariate distribution functions.2013. Simple risk measure calculations for sums of positive random variables. Didier (2013).] DOI: http://dx. Elena. Available via Athens: ScienceDirect Closed-form expressions for basic risk measures. (2011)’s characterization [H S Nam.e. Prieto.2013. DOI: http://dx. Using this proximity indicator and properties of distorted level curves.Yn)(X. are given for a family of statistical distributions that are specially suitable for right-skewed positive random variables. [RKN: 46614] Insurance: Mathematics & Economics (2013) 53(1) : 169-178. Rullière. Zhihui. and we finally get parametric representations of both multivariate distribution functions and associated level curves.org/10. the moments of discounted aggregate claim costs until ruin are studied. The model is based on distortion functions.2013. Ambrose (2013). thereby completing the gap in Nam et al.net/)/ Di Bernardino. Faustino (2013). Ka Chun. where (X.doi.net/)/ Cheung.doi. or Weibull max-domain of attraction. [This abstract contains mathematical notation. Three simple and illuminating proofs are provided. such as value-at-risk and tail value-at-risk.insmatheco.Qu.1016/j. Q Tang. that can be readily implemented in a spreadsheet. Numerical illustrations are also given at the end.org/10. F Yang (2011).….007 (access via Athens login http://www. José María.net/)/ Cheung. Yu (2013).net/)/ 22 . Insurance: Mathematics and Economics 48 (2011): 368-373].1016/j.insmatheco. Lo. DOI: http://dx. Our results are motivated by applications in multivariate risk theory.Refer to online abstract for correct algebraic notation In this paper.openathens.openathens.net/)/ Guillén.003 (access via Athens login http://www.001 (access via Athens login http://www. we prove that an upper comonotonic random vector must give rise to the maximal tail convex sum.…. Our analysis relies on a novel generalization of the so-called discounted density which further involves a moment-based component. More specifically. Insurance: Mathematics and Economics 47 (2010): 130-136] and show that the sum of two random variables is minimal with respect to the convex order if and only if they are counter-monotonic. Eric C K (2013). By establishing some useful properties of this relatively new stochastic order. [RKN: 46638] Insurance: Mathematics & Economics (2013) 53(2) : 343-354.06. Sarabia. we give a specific estimation procedure.04.1016/j.insmatheco. A suitable proximity indicator between level curves is introduced in order to evaluate the quality of candidate distortion parameters. DOI: http://dx.06. We derive some properties of considered distortions.1016/j. we characterize counter-monotonic and upper comonotonic random vectors by the optimality of the sum of their components in the senses of the convex order and tail convex order respectively.openathens. Gumbel.05.insmatheco. Characterizations of counter-monotonicity and upper comonotonicity by (tail) convex order.010 (access via Athens login http://www. Detailed examples concerning the discounted aggregate claims and the number of claims until ruin are studied upon assumption on the claim severities.Yn) follows a multivariate Sarmanov distribution.2013. and obtain the asymptotic behavior for the (in)finite-time ruin probabilities.doi. [RKN: 46623] Insurance: Mathematics & Economics (2013) 53(1) : 273-280.Y1. This is useful for risk aggregation in many insurance and financial applications that model positive losses.openathens. Available via Athens: ScienceDirect In this paper. for sums of correlated positive loss distributions. we propose a parametric model for multivariate distributions. where the Gaussian assumption is not valid. Available via Athens: ScienceDirect In the context of a Sparre Andersen risk model with arbitrary interclaim time distribution. Chen. Available via Athens: ScienceDirect In this paper.2013. we extend the characterization of comonotonicity by Cheung (2010) [K C Cheung (2010).openathens. we consider a discrete-time risk model with dependent insurance and financial risks.doi. Distortions of multivariate distribution functions and associated level curves: applications in multivariate risk theory. we propose to incorporate powers of the sum until ruin of the discounted (and possibly transformed) claims into the density.org/10. we investigate the tail probability of the product X i=1nYi. we investigate upper comonotonicity by means of the tail convex order.1016/j. The methodology is illustrated on simulated and real examples. i.004 (access via Athens login http://www. As applications. Available via Athens: ScienceDirect -. Moments of discounted aggregate claim costs until ruin in a Sparre Andersen risk model with general interclaim times. Our results provide a direct and flexible parametric approach to multivariate risk quantification. [RKN: 46616] Insurance: Mathematics & Economics (2013) 53(1) : 190-205. In the first part.doi.insmatheco. Characterization of upper comonotonicity via tail convex order. DOI: http://dx. The estimation algorithm is mainly relying on straightforward univariate optimizations. [RKN: 46637] Insurance: Mathematics & Economics (2013) 53(2) : 334-342. doi. because any [Lp] with [p>p0].org/10. The natural Banach space for version independent risk measures.insmatheco. where the first term is a phase-type approximation of our measure. M. One method uses fractional moments combined with the maximum entropy method and the other is a probabilistic approach that uses integer moments directly to approximate the density. and we check their accuracy through numerical experiments. Roberts. we assume that the claim sizes are a mixture of a phase-type and a heavy-tailed distribution and with the aid of perturbation analysis we derive a series expansion for the performance measure under consideration. Theoretical consequences of the asymptotic formulae indicate that some care is needed in the choice of parameters to avoid exponential growth (in time) of the ruin probabilities in these models.07. we are interested in the generalization and improvement of the estimator of the conditional tail expectation (CTE) for a heavy-tailed distribution when the second moment is infinite. Spectral risk measures constitute a further class of risk measures of central importance. Tagliani.] DOI: http://dx. Alois (2013). This. Philip S.Vatamidou.1016/j. To reduce the bias. Novi-Inverardi.09. DOI: http://dx.1016/j.010 (access via Athens login http://www. Numerical approximations of the ruin time distribution are derived via the Laplace transform of the asymptotic ruin time distribution. K Yamazaki.org/10. Henryk. and we present a number of results on its distributional behavior and compare its performance with the performance of other estimators.019 (access via Athens login http://www.openathens. among them the most important risk measure – the Average Value-at-Risk – are well defined on the larger space [L1] and this seems to be the natural domain space for this risk measure.openathens.2013.2013. Both methods use moments obtained from the Pollaczek–Kinchine identity for the Laplace transform of the probability of ultimate ruin.09. DOI: http://dx. Using the fluctuation theory of spectrally positive Lévy processes we give an explicit expression of the value function of a barrier strategy. what the natural domain to consider a risk measure is? This paper introduces a norm.net/)/ Yin.openathens. I J B F. Wen. we construct very accurate approximations of such performance measures that provide small absolute and relative errors. These are benchmarked against simulations based on importance sampling using stable processes. [RKN: 46704] Insurance: Mathematics & Economics (2013) 53(3) : 698-703.07.doi. Aldo (2013). DOI: http://dx. risk measures have also been considered on Orlicz and Zygmund spaces.doi.07.insmatheco.insmatheco. and they are often considered on some [Lp] space. which carries the risk measure in a natural way.insmatheco. E. Kyprianou and Yamazaki (2013a).1016/j. [RKN: 46711] Insurance: Mathematics & Economics (2013) 53(3) : 769-773. [RKN: 46643] Insurance: Mathematics & Economics (2013) 53(2) : 405-415. Our work is motivated by the recent work of Bayraktar.openathens.07. and important theorems on risk measures build on that space. say. many authors proposed the use of so-called second-order reduced bias estimators for both first-order and second-order tail parameters. Adan. We show that the corrected phase-type approximations exhibit a nice behavior both in finite and infinite time horizon. for which we have an explicit expression. A Kyprianou. On optimal dividends in the dual model.org/10. applies to the inverse Gaussian process when the safety loading is less than one.net/)/ Griffin. Our proposed approximations consist of the first two terms of this series expansion. It is often strictly larger than its original domain and obeys the key property that the risk measure is finite valued and continuous on that space in an elementary and natural way. In this work.org/10.1016/j. Vlasiou. [RKN: 46647] Insurance: Mathematics & Economics (2013) 53(2) : 457-463. Other risk measures.2013.doi. Abdelaziz (2013).net/)/ Gzyl. Motivated by statistical analysis.insmatheco. Optimal dividend problem with a terminal value for spectrally positive Lévy processes.openathens. Pier-Luigi. Determination of the probability of ultimate ruin by maximum entropy applied to fractional moments. is suitable to define the spectral risk measure as well. Kernel-type estimator of the conditional tail expectation for a heavy-tailed distribution.011 (access via Athens login http://www.002 (access via Athens login http://www. [This abstract contains mathematical notation. But in many situations this is possibly unnatural. Maller.2013.openathens. or coherent measures of risk.insmatheco. It is well known that classical estimators of the CTE are seriously biased under the second-order regular variation framework.net/)/ Rassoul. [RKN: 46649] Insurance: Mathematics & Economics (2013) 53(2) : 478-489. Corrected phase-type approximations of heavy-tailed risk models using perturbation analysis. which is built from the risk measure. [RKN: 46640] Insurance: Mathematics & Economics (2013) 53(2) : 366-378. Astin Bulletin (2013) 43(3): 359-372] DOI: http://dx. Yuzhen (2013).org/10. DOI: http://dx. Available via Athens: ScienceDirect In this paper. In addition to that. we have generalized a kernel-type estimator.doi. Available via Athens: ScienceDirect Numerical evaluation of performance measures in heavy-tailed risk models is an important and challenging problem. Available via Athens: ScienceDirect In this work we present two different numerical methods to determine the probability of ultimate ruin as a function of the initial surplus.1016/j.1016/j. Chuancun. Available via Athens: ScienceDirect In this paper we consider a modified version of the classical optimal dividend problem taking into account both expected dividends and the time value of ruin. B (2013).2013. Finite time ruin probabilities for tempered stable insurance risk processes. Available via Athens: ScienceDirect -. which includes the spectrally positive inverse Gaussian processes.org/10.doi. Available via Athens: ScienceDirect We study the probability of ruin before time t for the family of tempered stable Lévy insurance risk processes. We refer to our approximations collectively as corrected phase-type approximations. in particular.2013.005 (access via Athens login http://www. Subsequently we show that a barrier strategy is the optimal strategy among all admissible ones. Dale (2013).Refer to online abstract for correct notation Risk measures.004 (access via Athens login http://www. In this paper. So it remains for discussion and clarification. Zwart.net/)/ 23 . We assume that the risk process is modeled by a general spectrally positive Lévy process before dividends are deducted. and a new Banach space. [E Bayraktar. Ross A. are often considered on the space [L8].net/)/ Pichler. 1016/j. That dependence is incorporated through a mixing model in the individual claim amount distributions.10. expected and amount of dividends as well as the time of getting a dividend.1016/j.openathens. such as the calculation of the probability of a dividend. Klarm.org/10. Haezendonck-Goovaerts risk measures and Orlicz quantiles.See online abstract for correct notation The purpose of this paper is to point out that an asymptotic rule [A+B/u] for the ultimate ruin probability applies to a wide class of dependent risk processes. E. Stéphane (2013). Using our innovative approach we derive some already known results and go further by finding several new ones.openathens. distribution of the number of dividends. The surplus can be interpreted as a venture capital like the capital of an economic activity involved in research and development.doi. Müller. Chen.2013.openathens. Egídio dos Reis. By establishing a proper and crucial connection between the two models we show and explain clearly the dividends process dynamics for the dual risk model. We study different ruin and dividend probabilities.1016/j. Hence. where premiums are regarded as costs and claims are viewed as profits. An important difference between this model and some other models such as the Erlang-nn dual risk model is that the roots to the generalized Lundberg’s equation are not necessarily distinct. [RKN: 46781] Insurance: Mathematics & Economics (2013) 53(3) : 906-918. Like most authors. which has received a lot of attention recently since it corresponds to the existence of a natural backtesting methodology. namely. Also. From there we can get analytical results for cases where solutions and/or inversions are possible. [RKN: 46785] Insurance: Mathematics & Economics (2014) 54 : 28-40. DOI: http://dx. [RKN: 46786] Insurance: Mathematics & Economics (2014) 54 : 41-48.1016/j.003 (access via Athens login http://www. We discuss their properties as risk measures and point out the connection with the zero utility premium principle and with shortfall risk measures introduced by Föllmer and Schied (2002) [H. Several special mixing distributions are examined in detail and some close-form formulas are derived. in contrast to Orlicz quantiles that have been considered in Bellini and Rosazza Gianin (2012) [F.net/)/ Yang. properties for different random quantities involved as well as their relations. Ambrose (2013).org/10. Lourdes B. DOI: http://dx. In particular. Powell. We provide their dual and Kusuoka representations and discuss their relationship with CVaR. Newey. in other cases we may only get numerical ones.doi. Alfredo D (2013). Insurance: Mathematics and Economics (2009) 44(2): 315-324] is implemented under the Sparre-Andersen model with Erlang-nn distribution of the inter-event times. Christophe. convex expectations.1016/j. we apply our approach for obtaining the expected discounted dividends when the threshold-dividend strategy discussed by Ng (2009) [A. Fabio. Föllmer. Cardoso. Generalized quantiles as risk measures. Bernhard.net/) 24 . Dividend problems in the dual risk model. We analyze their asymptotic properties for a 1a 1 and show that for very heavy tailed distributions expectiles are more conservative than the usual quantiles.doi.insmatheco. See online abstract for correct notation used. Tail Value-at-Risk and the Haezendonck-Goovaerts risk measure. J. Loisel.012 (access via Athens login http://www. In this article. Rui M R.doi. On an asymptotic rule A+B/u for ultimate ruin probabilities under dependence by mixing.2013.org/10.openathens.09. [This abstract contains mathematical notation. Compared to existing results in the literature. General lower bounds on convex functionals of aggregate sums. Available via Athens: ScienceDirect The determination of the dependence structure giving rise to the minimal convex sum in a general Fréchet space is a practical. our new lower bounds enjoy the advantages of generality and analytic tractability.005 (access via Athens login http://www. by means of the minimization of a suitable asymmetric loss function. Gianin.insmatheco. [RKN: 46779] Insurance: Mathematics & Economics (2013) 53(3) : 884-896.] DOI: http://dx. Ng. Available via Athens: ScienceDirect We consider the compound Poisson dual risk model. DOI: http://dx.net/)/ Cheung. introduced by Newey and Powell (1987) [W. in continuous or discrete time. we consider the closely related problem of finding lower bounds on three kinds of convex functionals. Econometrica (1987) 55: 819-847] as the minimizers of an asymmetric quadratic loss function. In the statistical and actuarial literature several generalizations of quantiles have been considered. Lo. All these generalized quantiles share the important property of elicitability . dual to the well known classical risk model for insurance applications.020 (access via Athens login http://www. Emanuela Rosazza (2014). we study the Sparre-Andersen dual risk model in which the times between positive gains are independently and identically distributed and have a generalized Erlang-nn distribution.insmatheco. yet challenging problem in quantitative risk management. we show that the only MM-quantiles that are coherent risk measures are the expectiles .net/)/ Afonso. Convex measures of risk and trading constraints. In this paper. We obtain integro-differential equations for some of the above results and also Laplace transforms.net/) Bellini.10. which involves multiple roots. Asymmetric least squares estimation and testing.doi. We present examples under the two cases. Claim tail distributions and the dependence structure are also investigated. In particular. Bellini.org/10. Ka Chun.2013. A.10. Sendova. Claude. In this paper we investigate the case of MM-quantiles as the minimizers of an asymmetric convex loss function. Alfred. of a sum of random variables with arbitrary distributions.015 (access via Athens login http://www.2013. On a dual model with a dividend threshold. we show their robustness in the sense of lipschitzianity with respect to the Wasserstein metric. DOI: http://dx. we derive an explicit form of the expected discounted dividends when jump sizes are exponential. The ruin time under the Sparre-Andersen dual model.org/10. Available via Athens: ScienceDirect -. Lefèvre. Insurance: Mathematics & Economics (2012). Finally. [RKN: 46712] Insurance: Mathematics & Economics (2013) 53(3) : 774-785. we derive an explicit expression for the Laplace transform of the ruin time. Schied. Kristina P (2014).insmatheco. The sharpness of the lower bounds on the first two types of convex functionals is characterized via the extreme negative dependence structure of mutual exclusivity. Finance and Stochastics (2002) 6: 429-447].insmatheco. Rosazza Gianin.openathens. we consider an upper dividend barrier so that we model the gains of the capital and its return to the capital holders.10.Dutang. 51: 107-114].2013. net/) Cheung. A natural estimator of the Haezendonck-Goovaerts risk measure is the Haezendonck-Goovaerts risk measure of the empirical distribution. Numerical illustrations are provided for different settings and commonly-used distributions of risks.010 (access via Athens login http://www.org/10. The results are used to identify extreme scenarios and calculate bounds on Value-at-Risk as well as on convex and coherent risk measures and other quantities of interest in finance and insurance.1016/j.2013.org/10.doi.1016/j. On inequalities for moments and the covariance of monotone functions. we show that some important implications concerning comonotonic couples and corresponding convex order relations for their sums cannot be translated to counter-monotonicity in general. In applications often one has to estimate the risk measure given a random sample from an unknown distribution.doi. and the expected total amount of shortfalls to this set in finite and infinite horizons. [This abstract contains mathematical notation. In a financial context. Wang. This model may be used to describe the surplus of an insurance company possessing several lines of business where a large claim possibly puts multiple lines in a risky condition.insmatheco.openathens. Yian. Yam.doi.2013. Nariankadu D (2014). We propose a simple necessary and sufficient condition for such a merge to be effective. in the sense that it is appealing to both the policyholder and the insurer. [RKN: 46811] Insurance: Mathematics & Economics (2014) 55 : 1-9.006 (access via Athens login http://www.net/) Schmidt. The main goal of this article is to both establish the strong consistency of this estimator and to derive weak convergence limits for this estimator.doi. Jan. Ka Chun. which is based on a Breeden-Litzenberger type integral representation formula for increasing convex functions and the theory of comonotonicity. DOI: http://dx. the Tail Value-at-Risk (T-VaR) – T-VaR arguably the most popular risk measure in global insurance regulation.net/) Bernard.005 (access via Athens login http://www.11.insmatheco. Borch’s Theorem from the perspective of comonotonicity.11. [RKN: 46796] Insurance: Mathematics & Economics (2014) 54 : 144-151. g(X)]=0] should hold for any random variable XX and any two increasing functions ff and gg.1016/j. Conditional on the occurrence of ruin. We also conduct a simulation study to lend insight into the sample sizes required for these asymptotic limits to take hold.2013. and also without the need of assuming that all utility functions are continuously differentiable everywhere.insmatheco. Shyamalkumar. Our method allows us to derive Borch’s characterization without using Kuhn-Tucker theory. Reducing risk by merging counter-monotonic risks. This short note revisits the classical Theorem of Borch on the characterization of Pareto optimal risk exchange treaties under the expected utility paradigm. Our objective is to approach the optimal risk exchange problem by a new method.openathens. Rong.openathens.1016/j. we develop asymptotic approximations for the average accumulated number of claims leading the process to a rare set. Woo. Haezendonck-Goovaerts risk measures is a recently introduced class of risk measures which includes. Risk aggregation with dependence uncertainty.doi. Dhaene.doi. DOI: http://dx. Jae Youn.2013.org/10. as its minimal member.org/10.net/) Ahn.net/) 25 .2013.006 (access via Athens login http://www. The distribution could either be truly unknown or could be the distribution of a complex function of economic and idiosyncratic variables with the complexity of the function rendering indeterminable its distribution. See online abstract for correct formula notation Intuition based on the usual interpretation of the covariance of two random variables suggests that the inequality [cov[f(X). asymptotic results regarding the total occupation time of the process in a rare set and time-integrated amount of shortfalls to a rare set are obtained.12. permutation invariance and affine invariance.Cheung.] DOI: http://dx. Jingchen.014 (access via Athens login http://www. As applications. Hence statistical procedures for the estimation of Haezendonck-Goovaerts risk measures are a key requirement for their use in practice. [RKN: 46792] Insurance: Mathematics & Economics (2014) 54 : 93-108. In this paper we provide an elementary proof of a more general inequality for moments and we present several applications in actuarial mathematics. DOI: http://dx. S C P (2014). The inequality holds indeed.org/10. Jiang.openathens. we develop cancelation laws for convex order and identify desirable structural properties of insurance indemnities that make an insurance contract universally marketable. In this paper we consider a multidimensional renewal risk model with regularly varying claims. Tang.2013. [RKN: 46818] Insurance: Mathematics & Economics (2014) 55 : 78-90. We demonstrate that our approach can be used effectively to solve the Pareto optimal risk-sharing problem with a positivity constraint being imposed on the admissible allocations when the aggregate risk is positive.11. Asymptotic analysis of risk quantities conditional on ruin for multidimensional heavy-tailed random walks. for the continuous time case. Qihe (2014). We introduce the admissible risk class to study risk aggregation with dependence uncertainty. Furthermore. Ruodu (2014). it amounts to saying that merging counter-monotonic positions does not necessarily reduce the overall level of risk. Risk aggregation with dependence uncertainty refers to the sum of individual risks with known marginal distributions and unspecified dependence structure. Ambrose. Klaus D (2014). DOI: http://dx. The admissible risk class has some nice properties such as robustness. Jae-Kyung (2014). In this article.insmatheco. We then derive a new convex ordering lower bound over this class and give a sufficient condition for this lower bound to be sharp in the case of identical marginal distributions. Natural interpretations and various characterizations of this condition are given.org/10. Xiao. [RKN: 46819] Insurance: Mathematics & Economics (2014) 55 : 91-95.12. DOI: http://dx. Asymptotic theory for the empirical Haezendonck-Goovaerts risk measure. [RKN: 46788] Insurance: Mathematics & Economics (2014) 54 : 58-65. convexity. Carole.openathens. but its statistical properties have not yet been explored in detail.10.openathens.net/) Liu.insmatheco. Lo.003 (access via Athens login http://www. Ka Chun.1016/j.insmatheco.1016/j. but a proof is hard to find in the literature. net/) 26 . [RKN: 46827] Insurance: Mathematics & Economics (2014) 55 : 180-190. Wei (2014). These characterizations are related to the properties of arrangement increasing functions and the proposed notions of dependence incorporate many typical dependence structures studied in the literature for optimal allocation problems. Some new notions of dependence with applications in optimal allocation problems.2014. [RKN: 46831] Insurance: Mathematics & Economics (2014) 55 : 225-249. This approach allows the actuary to include risk factors not only in the mean but also in other key parameters governing the claiming behavior.008 (access via Athens login http://www. See online abstract for correct formula notation This paper studies a new risk measure derived from the expected area in red introduced in Loisel (2005) [S. M. Wei. S. [RKN: 46832] Insurance: Mathematics & Economics (2014) 55 : 250-260. Characterizing mutual exclusivity as the strongest negative multivariate dependence structure.doi. Loisel. Denuit. [RKN: 46833] Insurance: Mathematics & Economics (2014) 55 : 261-271. we derive various properties of a risk measure defined as the smallest initial capital needed to ensure that the expected time-integrated negative part of the risk process on a fixed time interval [0. we revisit this notion and present versatile characterizations of mutually exclusive random vectors via their pairwise counter-monotonic behaviour. Generalized additive models for location. shape define a flexible. Specifically.1016/j. DOI: http://dx.net/) Loisel. in many existing studies on these problems.1016/j. Such an approach allows us to incorporate structural information as well as to capture the effect of external factors (e.doi. we propose several new notions of dependence to model dependent risks and give their characterizations through the probability measures or distributions of the risks or through the expectations of the transformed risks.doi.01. The safest dependence structure among risks. Lo. Luca Vincenzo. Stefan. DOI: http://dx. Numerical experiments are presented showing that the novel approach provides a very satisfactory fitting to market data and outperforms the model developed by Madan and Unal (2000) [D.1016/j. we determine the way(s) to allocate this risk limit to the subsequent business lines in order to minimize the overall capital needs. Jun.2014. New models for claim severities that can be applied either per claim or aggregated per year are also presented. which is accurate. Lang.openathens. The paper deals with orthogonal polynomials as a useful technique which can be attracted to actuarial and financial modeling. To illustrate the relevance of this approach.doi. including double humped term structures. Julien (2014). We use Pearson’s differential equation as a way for orthogonal polynomials construction and solution. minimal convex sum property. Pacelli. [RKN: 46828] Insurance: Mathematics & Economics (2014) 55 : 191-199.2014. we derive explicit formulas for option prices as well as for insurance premiums. the proposed model offers great flexibility and allows us to obtain credit spread curves of many different shapes. macroeconomic factors) in a both parsimonious and economically consistent way. Bayesian inference is based on efficient Markov chain Monte Carlo simulation techniques and allows for the simultaneous estimation of linear effects as well as of possible nonlinear effects.insmatheco. In this article.2014.01. In this broader setting. a detailed case study is proposed based on the Belgian motor insurance portfolio studied in Denuit and Lang (2004) [M.Cheung.] DOI: http://dx. Melnikov.org/10. We also develop the properties of these dependence structures.doi. These applications extend many existing researches to more general dependent risks. and shape.2014. semi-parametric class of regression models for analyzing insurance data in which the exponential family assumption for the response is relaxed.org/10.insmatheco. H. We illustrate the applications of these notions in the optimal allocation problems of deductibles and policy limits and in capital reserves problems. Nadja.009 (access via Athens login http://www. Denuit. we use it as a basic distribution density of variables like financial asset returns or insurance claim sizes. In this paper.insmatheco. A two-factor hazard rate model for pricing risky debt and the term structure of credit spreads. Insurance: Mathematics & Economics (1999) 25: 11-21] in the context of insurance risks.net/) Li.insmatheco. and optimal reserve allocation.1016/j. Alexander V (2014).org/10. Differentiation of some functionals of risk processes.doi. Furthermore.001 (access via Athens login http://www. Mutual exclusivity is an extreme negative dependence structure that was first proposed and studied in Dhaene and Denuit (1999) [J. spatial variations and interactions between risk factors within the data set.T] (TT can be infinite) is less than a given predetermined risk limit.002 (access via Athens login http://www. Nonlife ratemaking and risk management with Bayesian generalized additive models for location. Graziella (2014). In this general setting.openathens. like the degree of residual heterogeneity or the no-claim probability.02. Properties of a risk measure derived from the expected area in red. However. [RKN: 46829] Insurance: Mathematics & Economics (2014) 55 : 200-209. quantitative risk management. Valuing risky debt: a new model combining structural information with the reduced-form approach.012 (access via Athens login http://www. Ka Chun.T][0. and finance. Trufin. risks or losses are often assumed to be independent or comonotonic or exchangeable. and allows for an efficient calibration to realized credit spreads. Dhaene.01. Polynomial extensions of distributions and their applications in actuarial and financial modeling.1016/j. Nonlife ratemaking with Bayesian GAM’s. distributional representation and the characteristic function of the sum of their components. Journal of Applied Probability (2005) 42(2): 379-392]. These characterizations highlight the role of mutual exclusivity in generalizing counter-monotonicity as the strongest negative dependence structure in a multi-dimensional setting. DOI: http://dx. From the practical standpoint.net/) Klein. We also investigate the optimal risk limit allocation: given a risk limit set at a company level for the sum of the expected areas in red of all lines. Madan.org/10. The numerical analysis shows that our new models provide a better fit than some previous actuarial and financial models. Journal of Financial Quantitative Analysis (2000) 35: 43-65]. Thomas (2014). DOI: http://dx.net/) Cai.net/) Ballestra. A new model of credit risk is proposed in which the intensity of default is described by an additional stochastic differential equation coupled with the process of the obligor’s asset value. Kneib. [This abstract contains mathematical notation. The generalized Rodrigues formula is used for this goal. scale and.2014.g. scale. Stéphane. Hao. the Negative Binomial regression with cell-specific heterogeneity and the zero-inflated Poisson regression with cell-specific additional probability mass at zero are applied to model claim frequencies. Lang. an approximate closed-form solution is derived.02. Insurance: Mathematics & Economics (2004) 35: 627-647].insmatheco.B.org/10.openathens.org/10. Ambrose (2014). Michel. easy to implement.openathens.openathens. Unal.01.insmatheco. DOI: http://dx. Deriving the weight function of the differential equation.001 (access via Athens login http://www.openathens. Denuit. Dependence structures of multiple risks play an important role in optimal allocation problems for insurance.1016/j. 001 (access via Athens login http://www.openathens. In this paper we study risk and liquidity management decisions within an insurance firm.2014. Considered as a decreasing function of premium rate cc.openathens. it is shown how the optimal capital allocation achieves a compromise between conflicting views of risk within the organization DOI: http://dx. See online abstract for correct formula notation This paper deals with ruin capital [ua. This observation is used to construct explicit upper bounds on the ruin capital.2014. the ruin capital is shown to be convex (i.04. Consider a continuous-time renewal risk model. When the claim-size distribution is dominatedly-varying tailed. Journal of Risk and Insurance (2012) 79(1): 1-28]. S. these measures are also suitable for multivariate risk problems where risks are heterogeneous in nature and cannot be aggregated together.openathens. Optimal capital allocation principles. Risk management corresponds to decisions regarding proportional reinsurance. preferences.insmatheco.05. See online abstract for correct formula notation Random deflation of risk models is an interesting topic for both theoretical and practical actuarial problems.insmatheco.net/) Hashorva. the upper-orthant CTE) is constructed from level sets of multivariate distribution functions (resp.doi.1016/j.003 (access via Athens login http://www. Vsevolod K (2014).net/) Zaks. optimal management does not involve refinancing.openathens.2014.A. Optimal capital allocation in a hierarchical corporate structure. Tsanakas.net/) 27 . In several examples. Optimal risk and liquidity management with costly refinancing opportunities.1016/j. singular stochastic control or stochastic impulse control techniques are used to seek strategies that maximize the firm value. Further we investigate the estimation of small tail probability for deflated risks and then discuss the asymptotics of the aggregated deflated risk. Andrea.and infinite-horizon ruin probabilities are obtained. we investigate second-order tail asymptotics of the deflated risk X=RSX=RS under the assumptions of second-order regular variation on the survival functions of the risk RR and the deflator SS.Cousin. [RKN: 46919] Insurance: Mathematics & Economics (2014) 57 : 31-45. Journal of Multivariate Analysis (2013) 119: 32-46]. Areski. Tsanakas. Several properties have been derived.009 (access via Athens login http://www. Chengxiu.t(c| .org/10. asymptotic estimates for the finite.openathens.01. [RKN: 46834] Insurance: Mathematics & Economics (2014) 55 : 272-282.openathens. DOI: http://dx. Vanduffel.org/10. E. the translation invariance property and the comonotonic additivity property.µ)ua.net/) Malinovskii.. Sub-additivity of the proposed multivariate CTE-s is provided under the assumption that all components of the random vectors are independent. Moreno Bromberg. Yaniv. with each pair obeying a dependence structure. Contrary to allocation measures or systemic risk measures.1016/j.doi. DOI: http://dx.org/10.04.net/) Fu. Valdez. [RKN: 46837] Insurance: Mathematics & Economics (2014) 55 : 301-309.1016/j. DOI: http://dx. Comparison between univariate risk measures and components of multivariate CTE is provided. On multivariate extensions of conditional-tail-expectation. [This abstract contains mathematical notation. Suppose that the surplus is invested in a portfolio whose return follows a Lévy process. Illustrations are given in the class of Archimedean copulas. [RKN: 46846] Insurance: Mathematics & Economics (2014) 56 : 80-87. We also analyze how these measures are impacted by a change in marginal distributions.insmatheco. the lower-orthant CTE (resp. Ng.insmatheco. by a change in dependence structure and by a change in risk level. Improved asymptotic upper bounds on the ruin capital in the Lundberg model of risk. Dhaene. As for the multivariate Value-at-Risk measures introduced by Cousin and Di Bernardino (2013) [A.doi.02.2014. In this paper. It is defined as the initial capital needed to keep the probability of ruin within finite time tt equal to a predefined value aa. concave downward) for [c> /µc> /µ] and tt sufficiently large. Cousin. the optimal strategies are always mixed in terms of risk management and refinancing. Santiago (2014).g.] DOI: http://dx. we show that the proposed multivariate CTE-s satisfy natural extensions of the positive homogeneity property. Di Bernardino.12. We consider capital allocation in a hierarchical corporate structure where stakeholders at two organizational levels (e. A. The two proposed multivariate CTEs are vector-valued measures with the same dimension as the underlying risk portfolio. Di Bernardino. In particular.2014. Thus. In this paper. Elena (2014).1016/j.013 (access via Athens login http://www. Enkelejd. by allowing potentially diverging risk preferences in a hierarchical structure. in which the claim sizes and inter-arrival times form a sequence of independent and identically distributed random pairs.org/10. [This abstract contains mathematical notation. [RKN: 46843] Insurance: Mathematics & Economics (2014) 56 : 48-55. whereas liquidity management has two components: distribution of dividends and costly equity issuance. Contingent on whether proportional or fixed costs of reinvestment are considered.004 (access via Athens login http://www. On multivariate extensions of value-at-risk. we introduce two alternative extensions of the classical univariate Conditional-Tail-Expectation (CTE) in a multivariate setting. Capital allocation is considered as the solution to an optimization problem whereby a quadratic deviation measure between individual losses (at both levels) and allocated capital amounts is minimized. Luyang. An explicit unique solution to this optimization problem is given. and beliefs about risk. Asymptotics for the ruin probability of a time-dependent renewal risk model with geometric Lévy process investment returns and dominatedly-varying-tailed claims.µ)] in the classical Lundberg model of risk.2013.doi. We find that. E. of multivariate survival distribution functions). Cheuk-Yin Andrew (2014). this paper generalizes the framework of Dhaene et al.e.org/10. Andreas (2014).insmatheco.001 (access via Athens login http://www. (2012) [J. [RKN: 46847] Insurance: Mathematics & Economics (2014) 56 : 88-101. in a proportional-costs setting. as well as a qualitative analysis of the interaction between refinancing and risk management. Ling. Our findings are applied to derive second-order expansions of Value-at-Risk. board members vs line managers) may have conflicting objectives.t(c| .net/) Barth.org/10..doi.] DOI: http://dx. In contrast.doi.1016/j. We provide analytical specifications of the optimal strategies.insmatheco. Peng. when fixed issuance costs are too high relative to the firm’s profitability. Second-order tail asymptotics of deflated risks. Zuoxiang (2014). Cairns. Guillaume (2014).insmatheco. The method mixes different copulas with distorted margins to construct new copula functions.1016/j. For risk-averse insurers with decreasing convex loss functions.doi. and it enables us to model the dependence structure of risks by handling the central and tail parts separately.doi.05. We show that the first term in the asymptotic behavior of the sum is not driven by the dependence structure when a Pareto random variable is involved.008 (access via Athens login http://www. Yuri.org/10. We show that copulae and kernel estimation can be mixed to estimate the risk of an economic loss. In the context of exchangeable random risks.2014. Cadenillas. Factor risk quantification in annuity models. An empirical study shows that copulas constructed by this method fit the empirical data of SPX 500 Index and FTSE 100 Index very well in both central and tail parts. Robust and bias-corrected estimation of the coefficient of tail dependence. Distorted Mix Method for constructing copulas with tail dependence. The efficiency of our methodology is illustrated on a small simulation study and by a real dataset from the actuarial context.2014. we prove that more capital should be allocated to the risk with the larger reversed hazard rate when risks are coupled by an Archimedean copula.002 (access via Athens login http://www. Christophe.net/) Wang. modelling the dependence between them. Calculation of risk contributions of sub-portfolios to total portfolio risk is essential for risk management in insurance companies.07.doi. Explicit solutions of optimal consumption.openathens.openathens.insmatheco. Manuel (2014).1016/j.openathens.insmatheco.insmatheco.org/10.2014. DOI: http://dx. We find that the maximum pseudo-likelihood estimation of the dependence parameter associated with the copula with double transformed kernel estimation to estimate marginal cumulative distribution functions is a useful method for approximating the risk of extreme dependent losses when we have large data sets.doi. we establish that risk-averse insurers incline to evenly distribute the total capital among multiple risks. As an application.006 (access via Athens login http://www. Motivated by the AIG bailout case in the financial crisis of 2007-2008.net/) Zou.007 (access via Athens login http://www. Also.insmatheco. We analyze the properties of the Sarmanov copula. [RKN: 46925] Insurance: Mathematics & Economics (2014) 57 : 104-113.org/10. Kleinow. Guillou. a tight bound for asymptotic Value-at-Risk of order statistics is obtained by using the method. We employ different approximations in order to convert the non-linear loss model into a linear one.06.net/) Bolancé. Xiaohu (2014). Li.insmatheco. This paper considers two business lines with the exponential loss distributions linked by a Farlie-Gumbel-Morgenstern (FGM) copula.004 (access via Athens login http://www.002 (access via Athens login http://www.org/10. Min (2014). Andrew J G (2014). investment and insurance problems with regime switching.05. Yang. Cadenillas.net/) You.net/) Coqueret.1016/j.openathens. Lujun.1016/j. The asymptotic properties of the estimator are investigated. Ugur. sufficient conditions are developed to exclude the worst capital allocations for random risks with some specific Archimedean copulas. DOI: http://dx.doi.openathens.net/) Zou. Torsten. Yuen. Quantifying the risk using copulae with nonparametric marginals. We analyze the tail of the sum of two random variables when the dependence structure is driven by the Bernstein family of copulas. Armelle (2014). Optimal capital allocations to interdependent actuarial risks. Optimal investment and risk control policies for an insurer: expected utility maximization. Bahraoui. [RKN: 46923] Insurance: Mathematics & Economics (2014) 57 : 77-89.openathens. Catalina. We illustrate the theory on an annuity portfolio where the main factor risks are interest-rate risk and mortality risk. However. Thanks to risk capital allocation methods and linearity of the loss model. DOI: http://dx. The insurer’s risk process is modeled by a jump-diffusion process and is negatively correlated with the capital gains in the financial market.2014.1016/j. We consider exponential and Pareto distributions as marginals. We use a bivariate sample of losses from a real database of auto insurance claims. Second order risk aggregation with the Bernstein copula. This paper introduces a method for constructing copula functions by combining the ideas of distortion and convex sum.Dutang. DOI: http://dx.05. Bin. The current Solvency II process makes risk capital allocation to different business lines more and more important.2014.openathens. DOI: http://dx.doi.06. As an allocation principle we use the Tail Covariance Premium Adjusted and obtain expressions for the allocation to the two business lines. By applying the method we can modify the tail dependence of a given copula to any desired level measured by tail dependence function and tail dependence coefficients of marginal distributions.openathens. Bin. We introduce a robust and asymptotically unbiased estimator for the coefficient of tail dependence in multivariate extreme value statistics. Zuhair.06.1016/j.05. The estimator is obtained by fitting a second order model to the data by means of the minimum density power divergence criterion.1016/j.net/) Li. [RKN: 47029] Insurance: Mathematics & Economics (2014) 58 : 150-158. DOI: http://dx. sub-portfolio (or position) contributions can be calculated efficiently. Our concern is the determination of factor risk contributions to total portfolio risk where portfolio risk is a non-linear function of factor risks.2014. K C.003 (access via Athens login http://www.insmatheco.org/10. [RKN: 46927] Insurance: Mathematics & Economics (2014) 57 : 125-131. Artís. factor risk contribution theory in non-linear loss models has received little interest.008 (access via Athens login http://www. we consider an insurer who wants to maximize his/her expected utility of terminal wealth by selecting optimal investment and risk control strategies. This paper further studies the capital allocation concerning mutually interdependent random risks.org/10. Capital allocation based on the Tail Covariance Premium Adjusted.org/10. named Distorted Mix Method.1016/j. Consequences on the Value-at-Risk are derived and examples are discussed. Jingping (2014).insmatheco. Abel (2014). [RKN: 46920] Insurance: Mathematics & Economics (2014) 57 : 46-57. [RKN: 47020] Insurance: Mathematics & Economics (2014) 58 : 57-67. Yinping. Abel (2014). [RKN: 47019] Insurance: Mathematics & Economics (2014) 58 : 45-56. We obtain explicit solutions of optimal strategies for various utility functions. [RKN: 47030] Insurance: Mathematics & Economics (2014) 58 : 159-167. DOI: http://dx.org/10. [RKN: 47018] Insurance: Mathematics & Economics (2014) 58 : 34-45.doi.2014.net/) Karabey. Goegebeur. 28 .doi.2014. DOI: http://dx. doi. J. Carl. On the analysis of a general class of dependent risk processes. For the case of hyperbolic absolute risk aversion (HARA) utility functions. These properties are discussed in detail in the model of Willmot and Woo (2012) [G. Motivated by new insurance products. investment and insurance policies.07.We consider an investor who wants to select his optimal consumption.07.openathens. The structural properties of the moments of the time to ruin are studied in dependent Sparre Andersen models.org/10. Asymptotic finite-time ruin probability for a bidimensional renewal risk model with constant interest force and dependent subexponential claims. DOI: http://dx.org/10. The obtained expression for the distribution of the sum features a separation property into marginal and dependence structure contributions typical for copula approaches.001 (access via Athens login http://www. We provide analytic pricing formulas for Fixed and Floating Range Accrual Notes within the multifactor Wishart affine framework which extends significantly the standard affine model. have played a key role in the representations of explicit solutions to these functionals. Irène. Li. The Markov additive process (MAP) has become an increasingly popular modeling tool in the applied probability literature. This paper considers a bidimensional renewal risk model with constant interest force and dependent subexponential claims. Woo.net/) 29 . We determine that the optimal insurance contract is either no-insurance or deductible insurance. Grasselli.doi.003 (access via Athens login http://www. Klaus (2014).2014. Potential measures for spectrally negative Markov additive processes with applications in ruin theory. Thanks to the Wishart tractability the hedge ratios are also easily computed.08. DOI: http://dx. A comparison with the most common competitors shows that the discussed Path Integration algorithm is the most suitable method for computing these quantities.1016/j.doi. the moments continue to satisfy defective renewal equations. Runhuan. Along the same lines we obtain the formulation of a conditional expectation closely related to the expected shortfall common in actuarial and financial literature.insmatheco.insmatheco.1016/j.insmatheco. [RKN: 47052] Insurance: Mathematics & Economics (2014) 59 : 11-26.insmatheco.net/) Gijbels.1016/j.net/) Chiarella. Wing Yan. In this paper. Herrmann. Through an economic analysis. quantities of interest are represented as functionals of MAPs and potential measures. Shimizu. and calculate when it is optimal to buy insurance. Willmot. In many applications.doi.net/) Yang. DOI: http://dx. As the models are estimated on the same dataset.002 (access via Athens login http://www.1016/j. Willmot. [RKN: 47034] Insurance: Mathematics & Economics (2014) 58 : 193-203.08. The objective of the investor is to maximize his expected total discounted utility of consumption over an infinite time horizon.net/) Feng.08. [RKN: 47051] Insurance: Mathematics & Economics (2014) 59 : 1-10. we derive for the finite-time ruin probability an explicit asymptotic formula.org/10. DOI: http://dx. Haizhong. also known as resolvent measures.insmatheco.2014.net/) Lee.2014. We further exploit the separation to introduce new numerical algorithms to compute the distribution and quantile function. See abstract online for mathematical notation We investigate distributional properties of the sum of 'd' possibly unbounded random variables.2014. Using estimates for three short rate models. On the moments of the time to ruin in dependent Sparre Andersen models with emphasis on Coxian interclaim times. investment.006 (access via Athens login http://www. José. we apply the theory to compute Value-at-Risk forecasts for a trivariate portfolio of index returns. we obtain the first explicit solutions for simultaneous optimal consumption. The optimal policy depends strongly on the regime of the economy.org/10.openathens. The differences can be substantial and underline the importance of model risk both from a static and a dynamic perspective. [RKN: 47033] Insurance: Mathematics & Economics (2014) 58 : 185-192. Pricing range notes within Wishart affine models.007 (access via Athens login http://www. and we show that the models can produce different price evolutions for the Range Accrual Notes.org/10. These results are confirmed by an analysis performed at the hedge ratios level.07.1016/j.insmatheco. DOI: http://dx.doi. This approach also provides a connection between results from fluctuation theoretic techniques and those from classical differential equation techniques. closed-form solutions to potential measures for spectrally negative MAPs are found using a novel approach based on algebraic operations of matrix operators. allowing for a variety of different dependence structures between the summands.E.openathens. The joint distribution of the random vector is formulated by means of an absolutely continuous copula.1016/j. Insurance Mathematics and Economics (2012) 51: 134-141]. Numerical examples illustrating the methodology are presented.org/10.-K. Gordon E (2014). as well as this conditional expectation. Jinzhu (2014). our results illustrate how the fit discrepancies (meaning differences in the likelihood functions) between models translate in terms of derivatives pricing errors. Yasutaka (2014). we calculate the advantage of buying insurance. In the end.doi. and insurance problems when there is regime switching.2014.openathens. Martino (2014). [RKN: 47053] Insurance: Mathematics & Economics (2014) 59 : 27-44. On the distribution of sums of random variables with copula-induced dependence. two of which are based on the Wishart process whilst the third one belongs to the standard affine framework. In particular. It is shown that structural properties of the Gerber-Shiu function hold also for the moments of the time to ruin. we allow not only the financial market but also the insurable loss to depend on the regime of the economy.008 (access via Athens login http://www. Structural quantities needed to determine the moments of the time to ruin are specified under this model. In our example. the paper presents a number of applications to ruin-related quantities as well as verification of known results concerning exit problems. Da Fonseca.2014. which has Coxian interclaim times and arbitrary time-dependent claim sizes. we price these structured products using the FFT methodology.openathens. The moments of the time to ruin may be viewed as generalized versions of the Gerber-Shiu function. DOI: http://dx.openathens. Under the assumption that the claim size vectors form a sequence of independent and identically distributed random vectors following a common bivariate Farlie-Gumbel-Morgenstern distribution. Bolancé et al. Yang. which implements a negative feedback mechanism for the known reserves with time-varying. This paper proposes a premium pricing model for General (Non-Life) Insurance products.openathens. C. Thus. In practice. Pistorius. stabilization and [H8] control for premium pricing models with uncertainties into a stochastic discrete-time framework. Eling (2012). Insurance Mathematics and Economics (2008) 43(3): 386-393. DOI: http://dx. The finite-time ruin probability with heavy-tailed and dependent insurance and financial risks. In this paper. 2002) allows us to model the more realistic situation with the books balanced e. and this paper.net/) Zhang.08. [RKN: 47067] Insurance: Mathematics & Economics (2014) 59 : 178-183. [RKN: 47054] Insurance: Mathematics & Economics (2014) 59 : 45-56. E. A second contribution is providing three new always admissible second order approximations for the ruin probabilities of the Cramér-Lundberg process with Brownian perturbation. Yang. Guillen. This motivates us to propose a generalization in which ruin is monitored at View the MathML source{Lk}k=08 whereas dividend decisions are only made at View the MathML source {Ljk}k=08 for some positive integer jj. many matrix exponential approximations used in applied probability are particular cases of the first and second order “admissible Padé approximations” of a Laplace transform. R. an insurance company typically balances its books (and monitors its solvency) more frequently than deciding on dividend payments.004 (access via Athens login http://www. Eric C K (2014). monthly and dividend decisions made e. DOI: http://dx.org/10. money market instruments. Insurance Mathematics and Economics (2006) 38: 413-426. bonds.08. the stabilization and the robust [H8] control for the reserve process are investigated using Linear Matrix Inequality (LMI) criteria. and (c) the aggregate loss transform. Pelican. For the robust [H8] control. (2008). See abstract online for mathematical notation Consider a discrete-time insurance risk model in which the insurer makes both risk-free and risky investments. Zhimin. The estimator is constructed via the Fourier transform of the ruin probability. Asmussen et al.org/10. Nonparametric estimation for the ruin probability in a Lévy risk model under low-frequency observation. and for nonincreasing in the case of a ccdf (survival function). Wei. See abstract online for mathematical notation In this paper. Numerical examples and figures illustrate the main findings of the paper. [RKN: 47063] Insurance: Mathematics & Economics (2014) 59 : 133-143. the Erlangization technique (e. Our third contribution is a method for comparing the resulting approximations. Our results show that the skew-student is an especially promising distribution for modeling asset returns such as those of stocks.2014. Bolancé et al. DOI: http://dx. Robust LMI stability. [RKN: 47055] Insurance: Mathematics & Economics (2014) 59 : 57-64. we propose a nonparametric estimator for the ruin probability in a spectrally negative Lévy risk model based on low-frequency observation.insmatheco. (b) the stationary excess transform. it appears that the skew-student is a promising actuarial tool since it describes both sides of the insurer’s balance sheet reasonably well. (2011b). Li (2014).doi. Cheung.g. and Eling (2012) identify the skew-normal and skew-student as promising models for describing actuarial loss data. Florin.doi. Not surprisingly. (2008). [RKN: 47066] Insurance: Mathematics & Economics (2014) 59 : 168-177. Our first contribution below is the observation that for Cramér-Lundberg processes and Brownian perturbed Cramér-Lundberg processes there are three distinct rational approximations of the Pollaczek-Khinchine transform. Bolancé.org/10. Fitting insurance claims to skewed distributions: are the skew-normal and skew-student good models? Insurance Mathematics and Economics (2012) 51: 239-248. Eling (2012). M.net/) Sun.2014. The model is developed into a stochastic.Y) 30 .1016/j.2014.openathens.g. Ying.005 (access via Athens login http://www.1016/j. On the expected discounted dividends in the Cramér-Lundberg risk model with more frequent ruin monitoring than dividend decisions.insmatheco. Multivariate skew-normal distributions with applications in insurance. Michael C H. we change the focus from the liability to the asset side and ask whether these distributions are also useful for analyzing the investment returns of insurance companies. Lin (2014). The convergence rates of the estimator are studied for large sample size. who proposed to only intervene in the compound Poisson risk process at the discrete time points View the MathML source {Lk}k=08 where the event of ruin is checked and dividend decisions are made.org/10. and hedge funds. Some simulation results are also given to show the performance of the proposed method when the sample size is finite.g. Fitting asset returns to skewed distributions: are the skew-normal and skew-student good models?. DOI: http://dx. Assume that the one-period insurance and financial risks form a sequence of independent and identically distributed copies of a random pair (X. In this paper. we further extend the insurance risk model in Albrecher et al.doi. based on the concept of largest weak-admissibility interval of the compounding/traffic intensity parameter ' '. DOI: http://dx. due to the easiness of obtaining them. Martin (2014). Athanasios A. Vernic (2006). To answer this question.net/) Avram. M.openathens. discrete-time framework and norm-bounded parameter uncertainties have been also incorporated.006 (access via Athens login http://www. Martijn (2014). Hailiang (2014). Under a dividend barrier strategy with the above randomized interventions. Combining the results of Vernic (2006)..08.2014. Numerical examples about dividend maximization with respect to the barrier bb and/or the value of j are given. attention will be focused on the design of a state feedback controller such that the resulting closed-loop system is robustly stochastically stable with disturbance attenuation level y>0. In practice.net/) Pantelous. the stability. corresponding to approximating (a) the claims transform.009 (access via Athens login http://www.2014.005 (access via Athens login http://www.insmatheco. quarterly or semi-annually.doi.Eling.1016/j.09. as solutions of linear systems. one of which reduces in the absence of perturbation to De Vylder’s approximation. On matrix exponential approximations of ruin probabilities for the classic and Brownian perturbed Cramér-Lundberg processes. where admissible stands for nonnegative in the case of a density. Assuming that the intervals between the time points View the MathML source {Lk}k=08 are Erlang(nn) distributed.1016/j.openathens.net/) Choi. See abstract online for mathematical notation Padé rational approximations are a very convenient approximation tool. See abstract online for mathematical notation The premium pricing process and the reserve stability under uncertainty are very challenging issues in the insurance industry.insmatheco. R. bounded delays.openathens. Skewed bivariate models and nonparametric estimation for the CTE risk measure.1016/j. we fit various parametric distributions to capital market data which has been used to describe the investment set of insurance companies. a premium which is sufficient enough to cover the expected claims and to keep stable the derived reserves is always required.09. Vernic (2008).org/10. [RKN: 47062] Insurance: Mathematics & Economics (2014) 59 : 121-132.insmatheco. Vernic (2006).doi. we derive the expected discounted dividends paid until ruin. under a mild restriction on the dependence structure of (X. however. Our numerical illustrations indicate that a K-forward hedge has a potential to outperform a q-forward hedge in terms of the number of hedging instruments required. When the product XY is heavy tailed. In this paper.10. showing that our work generalizes and unifies some of recent ones. DOI: http://dx.10.1016/j.org/10.net/) Malinovskii. The inverse of the (additive) generator of an Archimedean copula is a strictly decreasing and convex function.1] and the distortion function h is convex or concave. one can write a standardized mortality derivative called K-forward. there is a link between the magnitude of measures of risk attitude (like the very common Arrow-Pratt coefficient of absolute risk aversion) and the strength of dependence featured by the corresponding Archimedean copula.09.insmatheco. Weibull and Gumbel cases separately. See abstract online for mathematical notation For a risk variable XX and a normalized Young function f(·).004 (access via Athens login http://www. DOI: http://dx.insmatheco. Li.009 (access via Athens login http://www. A key point of the implementation was that hh can be explicitly solved for fixed x and q. we overcome several technical difficulties mainly due to the intricate relationship between the working variables x.2014. Li. For a general Young function.doi. [RKN: 47075] Insurance: Mathematics & Economics (2014) 59 : 279-284.net/) Spreeuw. Malinovskii (2014).insmatheco.doi.1) is defined as Hq[X]=infx R(x+h).002 (access via Athens login http://www.net/) Tang. the Haezendonck-Goovaerts risk measure for X at level q (0. An alternative and simple proof of the corresponding known result in the literature for the dispersive order is given. where h solves the equation E[f((X-x)+/h)]=1-q if Pr(X>x)>0 or is 0 otherwise.doi. we extend the asymptotic analysis for Hq[X] to the case with a general Young function and we establish a unified approach for the three extreme value cases. Insurance Mathematics and Economics (2014) 55: 301-309] have shown that the ruin capital’s shape is surprisingly simple. Meyer. Hu. Liu. Archimedean copulas derived from utility functions.net/) 31 .1016/j. which coincides with the long-standing one in the literature.doi.p(X)= h.org/10. Weiwei. An application in decision making under risk is provided to illustrate the interest of the result. DOI: http://dx.org/10.2014.openathens.2014. [RKN: 47079] Insurance: Mathematics & Economics (2014) 59 : 321-324.005 (access via Athens login http://www.2014. Extreme value analysis of the Haezendonck-Goovaerts risk measure with a general Young function. Jaap (2014). Liqun. One basis of this conclusion is that the adapted model M7 gives the best fitting and forecasting performance when applied to data over the age range of 40–90 for various populations. we implemented an asymptotic analysis for Hq[X] with a power Young function for the Fréchet. Uditha (2014).with dependent components.2014. In the present paper.004 (access via Athens login http://www. See abstract online for mathematical notation The Lp-metric h. a property that is required to ensure the resulting mortality indexes are tractable by market participants.1016/j.openathens.K. we establish for the finite-time ruin probability an asymptotic formula. Qihe. If we derive the inverse of the generator from the utility function. DOI: http://dx.doi.net/) Tan. Various important special cases are presented. In a recent work.doi. Jianping. Simulation analysis of ruin capital in Sparre Andersen’s model of risk. The analytical studies of this function in the classical Lundberg model of risk with exponential claim sizes done in Malinovskii (2014) [V.org/10. Jack (2014). A numerical example about modeling dependence of coupled lives is included. then h.org/10. Some new copula families are derived. [RKN: 47068] Insurance: Mathematics & Economics (2014) 59 : 184-193. Taizhong (2014). See abstract online for mathematical notation In this paper.2014. This work presents the results of related simulation studies.openathens.008 (access via Athens login http://www.1016/j. Some applications are also presented.010 (access via Athens login http://www.openathens.insmatheco.net/) Denuit. In doing so. See abstract online for mathematical notation The present paper extends to higher degrees the well-known separation theorem decomposing a shift in the increasing convex order into a combination of a shift in the usual stochastic order followed by another shift in the convex order. Another basis is that the three time-varying parameters in it are highly interpretable and rich in information content. [RKN: 47078] Insurance: Mathematics & Economics (2014) 59 : 311-320. Zhuang. We first study how existing models can be adapted to satisfy the new-data-invariant property.openathens.openathens. Improved asymptotic upper bounds on ruin capital in Lundberg model of risk. while utility functions (applying to risk averse decision makers) are nondecreasing and concave. we investigate the construction of mortality indexes using the time-varying parameters in common stochastic mortality models. Based on the three indexes created from this model.p(Y) whenever p (0. this does not work anymore and the problem becomes a lot harder. Ksenia O (2014).doi. and their properties are discussed. Kosova.p(X) between the survival function F of a random variable X and its distortion F is a characteristic of the variability of X.2014.org/10.Y). [RKN: 47071] Insurance: Mathematics & Economics (2014) 59 : 235-242. Vsevolod K.insmatheco. They are focused on the question whether this shape remains similar in Sparre Andersen’s model of risk. DOI: http://dx.1016/j.insmatheco. Ruin capital is a function of premium rate set to render the probability of ruin within finite time equal to a given value.net/) Yang. Fan (2014).10.openathens.org/10. This provides a basis for deriving an inverse generator of an Archimedean copula from a utility function.1016/j. [RKN: 47076] Insurance: Mathematics & Economics (2014) 59 : 285-299. Jackie. A separation theorem for the weak s-convex orders.1016/j. DOI: http://dx. Balasooriya. which gave rise to the possibility to express Hq[X] in terms of x and q. Another contribution of this paper is a method called key K-duration that permits one to calibrate a longevity hedge formed by K-forward contracts. we find that the adapted Model M7 (the Cairns-Blake-Dowd model with cohort and quadratic age effects) is the most suitable model for constructing mortality indexes. Michel.10. Among the collection of adapted models. which can be used to hedge longevity risk exposures. it is shown that if a random variable X is larger than another random variable Y in the location-independent risk order or in the excess wealth order. DOI: http://dx.09. Yang. Lp-metric under the location-independent risk ordering of random variables. Johnny Siu-Hang. Chong It. h and q. Parametric mortality indexes: from index construction to hedging strategies.insmatheco.10. even when tail risks strike. Constraints in quantitative strategies: an alignment perspective. DOI: http://dx. Ding. Risk parity in US futures markets : Invited editorial.09. long-term investors are expected to fare with stocks rather than with bonds. We provide a clean out-of-sample test of momentum effects by focusing on a new sample period and a new set of test assets. Risk parity allocates identical percentage contribution to risk to each individual asset. Li.doi. uncertainty about how much better. this article argues that when 1. This allows concerns raised earlier about the availability of historic implementation costs or the historic price of leverage to be sidestepped.1016/j. we examine market states and momentum in sector exchange-traded funds (ETFs) in the post-2000 period. Anureet.1057/jam. portfolio evaluation. We establish the surplus process of the difference of two DCP distributions. Martin. By applying inverse Fourier transform of p. analytical complexities notwithstanding. While the role of misaligned alpha factors in causing FAP is relatively easy to understand. Palgrave Macmillan. In the absence of established theoretical foundations. For long-term investors. In fact.2014. XiaoBing (2014). This is an ill-founded belief.1057/jam.net/) Estrada. DOI: http://dx.net/) Du. the risk model and the constraints are collectively referred to as Factor Alignment Problems (FAP). they have a large impact on terminal wealth. Liu. caution should be exercised in using the models that take into account momentum effects.24 (access via Athens login http://www. Our findings have important theoretical as well as practical implications. Yunxiao.. [RKN: 46930] Journal of Asset Management (2014) 15(4) : 239-259. Volatility is the most widely used measure of risk but its relevance is questionable in many settings. and that momentum does not depend on market states in the recent decade. Karen Craft.2013. Rethinking risk. but about higher return expectations for leveraged low-risk bonds. we consider geometric Brownian motion with DCP jumps and derive its rrth moment.g. Hence. As an application to finance and insurance. stocks offer long-term investors better downside protection than bonds in the form of a higher terminal wealth.20 (access via Athens login http://www. investors and product suppliers attribute the strong historical performance of risk parity portfolios to better diversification.21 (access via Athens login http://www. [RKN: 46929] Journal of Asset Management (2014) 15(4) : 223-237.5. incorporating the impact of constraints entails considerable analytical complexity that most consultants and researchers find difficult to fathom. Javier (2014).net/) 32 . our findings suggest that in capital budgeting.insmatheco.org/10.2014. The practical issues that arise due to the interaction between three principal players in any quantitative strategy. namely.012 (access via Athens login http://www.openathens. it is convenient to numerically calculate probability density and do parameter estimation. We argue that simply aligning alpha and risk factors is insufficient in handling FAP. Chris.openathens.doi. Bernd (2012). however. Market states and momentum in sector exchange-traded funds. models attempting to explain momentum now have a higher hurdle to meet in that these models need to explain why momentum does not seem to exist in the recent decade.f. 5 or 10 per cent tail risks strike. In terms of practical implications.f. Zhao. and we give Le Cam’s error bound between the total default and a DCP distribution. [RKN: 45745] Journal of Asset Management (2012) 13 (3) : 155-161. Using a comprehensive sample that spans over 19 countries and 110 years. including the strictly decreasing discrete distribution and the zero-inflated discrete distribution with P(X=0)>0. We demonstrate that the typical symptoms of FAP are present in optimal portfolios generated by using completely aligned alpha and risk models. DOI: http://dx. their higher volatility essentially is higher upside risk. we provide theoretical guidance to clarify the role of constraints in influencing FAP and illustrate how the Alpha Alignment Factor methodology can handle misalignment resulting from constraints.2014. the alpha model. Our results suggest that there is no momentum in sector ETFs. that is.g. Bo (2014). the default loss of each debtor and the total default of all debtors are both approximately equal to a DCP distribution.openathens. In terms of theoretical implications. we firstly show that in the generalized CreditRisk+ model.doi.org/10. In addition. See abstract online for mathematical notation Probability generating function (p. investment and risk analysis decisions. Stubbs. are critical because.doi. Robert A (2013). DOI: http://dx.net/) JOURNAL OF ASSET MANAGEMENT Scherer. In contrast to past work. Tail risks. More specifically. Notes on discrete compound Poisson model with applications to risk theory. and numerically compute the tail probability. stocks offer both a higher upside potential and better downside protection than bonds. [RKN: 47080] Insurance: Mathematics & Economics (2014) 59 : 325-336. Huiming.Zhang.org/10.openathens. Saxena. Furthermore. short-term volatility is a nuisance they just have to live with and disregard as much as possible.) is a powerful tool to study discrete compound Poisson (DCP) distribution. Denning.1057/jam. [RKN: 46632] Journal of Asset Management (2013) 14(5) : 278-292.org/10. we define the discrete pseudo compound Poisson (DPCP) distribution and give the characterizations and examples of DPCP distribution. Next. not how much worse. Although this is consistent with leverage aversion. I use futures data instead of diversified equity and bond indices. it is incompatible with consumption-based asset pricing. For US futures data I show that risk parity is not about diversification. although rare by definition. We employ a risk-constrained optimization approach to study the capital allocation decisions under ERM. Internet URL: http://www.openathens.33 pages. the insolvency propensity is found to be significantly related to an insurer's hurricane prone area exposure. Patrick L. and insurance.21 pages. . and the cost of failure. which raises systemic risk concerns.org/10. Available via Athens: Wiley Online Library This article examines whether managers impact firm performance. We find managerial ability is inversely related to the amount of time a firm spends in distress. Cooper. a version of the Wang transformation model and the linear model are the most accurate ones.2010. under consideration of the financial crisis. We apply different premium calculation models to compare them with regard to their predictive power. This approach explicitly quantifies the concepts of risk appetite and risk prioritization in light of the firm's default and financial distress avoidance reflected in its target credit rating. In addition. Martin F (2012). financial. we discuss how private insurance could be used to cover the loss from defaults by clearing members. Derivatives clearing. .28 pages.28 pages. As an initial conceptual advancement. This article traces the genesis of moral hazard. We illustrate the implementation of the framework through a numerical example. Internet URL: http://www. which are identified within the medieval theological and probability literatures. Given the decision maker's risk appetite.net/) Cheng. bond portfolio duration. Weiss. J Tyler. normative conception of moral hazard found within the insurance-industry literature with the largely positive interpretations found within the economic literature. We conservatively define managerial ability as the manager's capacity to deploy the firm's resources. we show that extreme losses suffered by important clearing firms tend to cluster. Marcello. we analyze the clearing house exposure to the risk of default by clearing members. . Furthermore.1539-6975. Linda L (2012). These results suggest that the managers of failed firms are less skilled than their counterparts. . operational.openathens. William W. We find that the major source of default risk for a clearing member is proprietary trading rather than trading by customers.net 33 .net Jones. Mary A (2012).1111/j. the problem of holistically managing enterprise-wide hazard. Golden. A history of the term “moral hazard”. Jing. default risk. But even within failed firms there is heterogeneity in the talents of managers.JOURNAL OF RISK AND INSURANCE Ai.25 pages. Grace. Without taking the financial crisis into account. while trading off risks simultaneously in Value-at-Risk type of constraints. Finally. Brockett. Because the market of CAT bonds is not complete. Our framework also allows the firm to consider a multiperiod planning horizon so that changing business environments can be accounted for. Christine (2013). In contrast. [RKN: 73846] Journal of Risk and Insurance (2012) 79 (1) : 29-56. hurricane exposure. Accuracy of premium calculation models for cat bonds—an empirical analysis.openathens.net Leverty. the likelihood of a firm's failure. Luke B (2012). the industry-wide combined ratio. Winkelvos. DOI: http://dx. Pérignon. Internet URL: http://www. Connelly.openathens. and real project risks is treated by maximizing the expected total return on capital.x (access via Athens login http://www. changes in interest rates. all analyzed models are approximately equivalent. In contrast. Available from Athens: Wiley Online Library Using daily data on margins and variation margins for all clearing members of the Chicago Mercantile Exchange. Available via Athens: Wiley Online Library This research analyzes the performance of the risk-based capital (RBC) ratio and other variables in predicting insolvencies in the property–liability insurance industry during the period 1994–2008. [RKN: 70415] Journal of Risk and Insurance (2012) 79 (3) : 751-783.doi. which has been used by stakeholders to influence public attitudes to insurance. [RKN: 74029] Journal of Risk and Insurance (2013) 80 (2) : 373-700. Internet URL: http://www.01403.openathens. The results indicate that the accuracy of the RBC ratio in predicting insolvencies is inconsistent over time and that some previously tested financial ratios that are part of the FAST system do not always reliably predict insurer insolvency. Available via Athens: Wiley Online Library This article presents a conceptual framework for operationalizing strategic enterprise risk management (ERM) in a general firm. The focus then shifts to compare and contrast the predominantly. Jiang. .net Rowell. Dupes or incompetents? An examination of management's impact on firm distress. [RKN: 71067] Journal of Risk and Insurance (2012) 79 (4) : 1051-1075. by identifying salient changes in economic thought. we find that CAT bond specific information does not improve out-of-sample results. Robert A. Available from Athens: Wiley Online Library The term “moral hazard” when interpreted literally has a strong rhetorical tone. . Marc. The role of RBC. to do with morality.net Galeotti. [RKN: 70414] Journal of Risk and Insurance (2012) 79 (3) : 723-750. [RKN: 74030] Journal of Risk and Insurance (2013) 80 (2) : 401-421. David. our formulation is capable of facilitating more general ERM modeling within a consistent strategic framework. Gürtler. Enterprise Risk Management through strategic allocation of capital.28 pages. where idiosyncratic variations of firms and different modeling assumptions can be accommodated.openathens. economists have treated moral hazard as an idiom that has little. if anything. Christophe (2013). Available from Athens: Wiley Online Library CAT bonds are of significant importance in the field of alternative risk transfer. the application of an appropriate pricing model is of high relevance. and macroeconomic and industry-wide factors in property–liability insolvency prediction. Internet URL: http://www. We verify the validity of our metric using a manager–firm matched panel data set that allows us to track managers (CEOs) across different firms over time. Additionally. and the industry-wide Herfindahl index of premiums written. Managerial implications are also discussed. Using the systemic risk measure. Marek.net Gatzert. product.32 pages. Higher levels of compensation.30 pages.openathens. Internet URL: http://www. Based on linear and nonlinear causality tests. Min-Ming (2014). Martin. Nadine. Hua. is still absent in the literature. [RKN: 74537] Journal of Risk and Insurance (2014) 81 (3) : 683–708. Although scenario analysis is an important tool for financial risk measurement.. K C J. Internet URL: http://www. and a full internal model. This analysis is not only of relevance for Solvency II. what-if assessment for scenario analysis. the impact of banks on insurers is stronger and of longer duration than the impact of insurers on banks. we present empirical evidence on the link between corporate governance and risk taking. Risk-minimizing reinsurance protection for multivariate risks. . Harald (2014). Using the Change of Measure approach. An out-of-sample forecasting exercise of the financial crisis shows that a simple approach addressing both issues is able to produce ranges for risk measures consistent with realized losses. . and ownership structure) on risk taking in the insurance industry. [RKN: 74529] Journal of Risk and Insurance (2014) 81 (2) : 303–334. to the best of our knowledge. and German insurance markets. increased monitoring (more independent boards with more meetings). compensation. . Yam. [RKN: 74542] Journal of Risk and Insurance (2014) 81 (3) : 653–682.net Cheung. Scenario analysis in the measurement of operational risk capital: a change of measure approach. In this article. By using minimax theorem. especially due to new European risk-based regulatory framework Solvency II. The global financial crisis exposed financial institutions to severe unexpected losses in relation to mortgage securitizations and derivatives.net 34 . [RKN: 74541] Journal of Risk and Insurance (2014) 81 (3) : 623–652. and financial risk in insurance companies and employ a structural equation model in which corporate governance is modeled as a latent factor.30 pages. J David.openathens. a partial internal model. and Loss Given Default estimates used in credit evaluations. David F (2014). The model's concave risk–return trade-off dictates that a higher correlation between hurricane power and insurer's loss.net Eling. three different approaches of deriving solvency capital requirements are analyzed: the Solvency II standard model. We develop an optimum risk–return hurricane hedge model in a doubly stochastic jump-diffusion economy.openathens.26 pages. In reality. Stress tests confirm that banks create significant systemic risk for insurers but not vice versa.Chang. The analysis emphasizes that diversification plays a central role and that operational risk measurement and management is highly relevant for insurers and should be integrated in an enterprise risk management framework. This explains how financial markets were taken by surprise in relation to realized losses. Internet URL: http://www. considering insurers from two large European insurance markets.24 pages. we find evidence of significant bidirectional causality between insurers and banks. after correcting for conditional heteroskedasticity. Operational risk can substantially impact an insurer's risk situation and is now increasingly in the focus of insurance companies. Jack S K.openathens.openathens. Scheule. then we proceed to establish that the stop-loss reinsurances are optimal in the sense that they minimize a general law-invariant convex risk measure of the total retained risk.18 pages. Kolb. and the faster the warming the more pronounced the jump effects. This article finds that risk models such as ratings are exposed to a large degree of systematic risk and parameter uncertainty. monitoring.e. we study the problem of optimal reinsurance policy for multivariate risks whose quantitative analysis in the realm of general law-invariant convex risk measures. Internet URL: http://www. This article uses daily market value data on credit default swap spreads and intraday stock prices to measure systemic risk in the insurance sector.openathens. Weiss. Our empirical results provide justification for including factors related to corporate governance in insurance regulation. Sung. K C. Forecasting mortgage securitization risk under systematic risk and parameter uncertainty. [RKN: 74525] Journal of Risk and Insurance (2014) 81 (1) : 199-217.openathens. a smaller variable hedging cost. . S C P (2014). . it is often difficult to determine the actual dependence structure of these risks. we propose the minimax optimal reinsurance decision formulation in which the worst case scenario is first identified. and more blockholders are associated with lower risk taking. explicit form of and sufficient condition for ordering the optimal deductibles are also obtained. Numerical results show that hedging hurricane jump risks is most crucial with jump volatility being the dominant factor.net Chen. We measure asset. but also regarding an insurer's Own Risk and Solvency Assessment (ORSA) that is not only planned in Solvency II.net Dutta. Kabir K. Chang. but also by the NAIC in the United States. Internet URL: http://www. Krupa S.net Rösch. Andreas (2014). [RKN: 74526] Journal of Risk and Insurance (2014) 81 (1) : 219-236. Corporate governance and risk taking: evidence from the U. Wen. Internet URL: http://www. Carolyn W. [RKN: 74539] Journal of Risk and Insurance (2014) 81 (3) : 563–586. we evaluate the impact of each scenario on the total estimate of operational risk capital. a positive jump. Daniel. Cummins. Babbel. and a negative hedging cost component.K. Mary A (2014). We analyze the impact of factors related to corporate governance (i. Instead of assuming any particular dependence structure. Sebastian D (2014). and a larger market risk premium result in a less costly but more effective hedge.19 pages. . We propose a method that combines scenario analysis with historical loss data. . The aim of this article is to model and examine the effects of operational risk on fair premiums and solvency capital requirements under Solvency II. At large financial institutions. Optimum hurricane futures hedge in a warming environment: a risk– return jump-diffusion approach. its use in the measurement of operational risk capital has been arbitrary and often inaccurate. Viswanathan. we examine the interconnectedness between banks and insurers with Granger causality tests. However. Based on this model. operational risk is gaining the same importance as market and credit risk in the capital calculation. In particular. Systemic risk and the interconnectedness between banks and insurers: an econometric analysis. The resulting hedge ratio comprises of a positive diffusion. Risk measurement and management of operational risk in insurance companies from an enterprise perspective. Internet URL: http://www. The method can be used in stress-testing. Charness. Jack. Julie. [RKN: 73972] Journal of Risk and Uncertainty (2012) 44 (3) : 219-241. but also on psychological factors such as ambiguity and familiarity. This paper finds that downside risk increases can also be characterized as changes preferred by all decision makers displaying decreasing absolute risk aversion (DARA) since those changes involve random variables that have equal means. This pattern is explained by the lower level of risk associated with invalidating signals. Subjects observe a sample drawn from an urn and form initial beliefs about the urn’s composition. Linde. Using 325 Beijing subjects. but not ambiguity aversion. Downside risk increases have previously been characterized as changes preferred by all decision makers u(x) with u'''(x) > 0. Rosaz. 35 . [RKN: 45593] Journal of Risk and Uncertainty (2012) 44 (1) : 45-72. Social comparison and risky choices. Gregory. Soo Hong. We then elicit how beliefs are modified after subjects receive a signal that restricts the set of the possible urns from which the observed sample could have been drawn. the paper proposes using “more decreasingly absolute risk averse” or “more prudent” as alternative definitions of increased downside risk aversion. signals that contradict the initial belief). Liqun (2012). We explore whether this omission is detrimental. The WTA-WTP gap is due largely to the reference dependence effects related to costs. Other properties of the new definitions of increased downside risk aversion are also presented. Ebstein. DeAngelo. For risk averse decision makers. Prospect theory with a social reference point would predict the exact opposite behavior. These results show that straightforward extensions of existing theories to allow for social comparison do not provide accurate predictions. We find that this type of signal increases the frequency of correct assessments and that prediction accuracy is higher for lower levels of risk. We genotype subjects for anxiety-related candidate genes and find a serotonin transporter polymorphism being associated with familiarity bias. 39. Deterrence. We estimate separate reference dependence effects for the four possible cost and health risk change combinations using data from our choice-based experiment for a nationally representative sample of 4. Estimated income effects are under a penny and thus cannot account for higher values of WTA relative to WTP. Our findings contribute to understanding of decision making under uncertainty beyond revealed preference. we find evidence for a lack of persistence of choices under high risk.23 pages. Sonnemans. for increases and decreases in costs. Meyer. expected cost. For ambiguity aversion. Huber. .e. (b) uncertainty about the enforcement regime yields a significant reduction in violations committed. Why WTA-WTP discrepancies arise is not well understood. and reference dependence effects embodying the interaction of two changes. Standard models of reference dependence are not consistent with the results. We generalize models of reference dependence to identify separate reference dependence effects for increases and decreases in environmental health risk probabilities. Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay. Liu. we conduct a neurogenetic study of ambiguity aversion and familiarity bias in an incentivized laboratory setting. [RKN: 73973] Journal of Risk and Uncertainty (2012) 44 (3) : 243-260. Building on these findings. Springer. while the existing definition based on a transformation function with a positive third derivative does not. Springer. Springer.6% choose the bet on Beijing’s temperature rather than the corresponding bet with Tokyo even though the latter pays 20% more. while the dopamine D5 receptor gene and estrogen receptor beta gene are associated with ambiguity aversion only among female subjects. [RKN: 45594] Journal of Risk and Uncertainty (2012) 44 (1) : 73-100. Jona. We use a roadway speeding framing and find that (a) individuals respond considerably to increases in the expected cost of speeding. and (c) people are much more likely to speed when the punishment regime for which they voted is implemented. Joep (2012). as there is an interactive effect. Songfa (2012). The effect of the expected cost of punishment of an individual’s decision to engage in a proscribed activity and the effect of uncertainty on an individual’s decision to commit a violation are very difficult to isolate in field data. For familiarity bias. .18 pages. We conduct laboratory experiments to investigate the effects of deterrence mechanisms under controlled conditions. Richard P.4% of the subjects choose to bet on the 50–50 deck despite the unknown deck paying 20% more. Roussillon. Participants are more risk averse when they can earn at most as much as their referent (loss situation) than when they are ensured they will earn at least as much as their referent (gain situation). These alternative definitions generate a transitive ordering. We conduct an experiment on individual choice under risk in which we study belief updating when an agent receives a signal that restricts the number of possible states of the world. u'''(x) > 0 also defines prudence. Springer.JOURNAL OF RISK AND UNCERTAINTY Chew. 49. It is increasingly recognized that decision making under uncertainty depends not only on probabilities. uncertainty and voting: Experimental evidence. Springer. W Kip. To do so we experimentally investigate the simplest possible situation with both social comparison and risk: participants choose between two lotteries while a referent faces a fixed payoff. Our results have important implications for a behavioral theory of deterrence under uncertainty. Theories (and experiments) on decision making under risk typically ignore (and exclude) a social context. Zhong. Viscusi. Springer. Joel (2012). Poinas. Béatrice (2012).745 households. [RKN: 45592] Journal of Risk and Uncertainty (2012) 44 (1) : 19-44. Decreasing absolute risk aversion. Finally. prudence and increased downside risk aversion. Ambiguity aversion and familiarity bias : Evidence from behavioral and gene association studies. [RKN: 45591] Journal of Risk and Uncertainty (2012) 44 (1) : 1-18. François. Gary (2012). The gap between willingness-to-pay (WTP) and willingness-to-accept (WTA) benefit values typifies situations in which reference points—and direction of movement from reference points—are consequential. We also show that prediction accuracy is higher after invalidating signals (i. Updating beliefs with imperfect signals: Experimental evidence. Thomas J (2012). the most important of which is the difference in priorities between reducing the risk of many small or one large accident. (ii) actual vs. [RKN: 70232] Journal of Risk and Uncertainty (2012) 45 (2) : 97-113. We find only minor differences between the responses of administrators and the general public. Comparing risk preferences over financial and environmental lotteries. Do administrators have the same priorities for risk reductions as the general public?.Meyer. A central finding is that investments display a short-term forgetting effect consistent with the use of reinforcement learning rules. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming reference-dependent preferences a priori. Kniesner. Ou-Yang. Howard C. We investigate differences in three areas: (i) large vs. where a significant driver of investments in a given period is whether storm losses were incurred in the precious period. Failing to learn from experience about catastrophes : The case of hurricane preparedness. A genuine foundation for prospect theory.23 pages.net Schmidt. and demographic characteristics affect their probability weighting functions first for financial risks. attitudinal. Losers and losers: Some demographics of medical malpractice tort reforms. Mary (2012). Schmidt. extreme financial outcomes. Instead.net 36 . . This paper investigates whether preferences over environmental risks are best modeled using probability-weighted utility functions or can be reasonably approximated by expected utility (EU) or subjective EU models as is typically assumed. Riddel. Henrik (2012). Given the relative rarity of such losses. Springer. This paper explores the question of whether there are inherent limits to our ability to learn from experience about the value of protection against low-probability. [RKN: 45872] Journal of Risk and Uncertainty (2012) 45(2) : 97-113. Horst (2012). I conclude that EU models are likely to underestimate subjects’ willingness to pay for environmental cleanup programs or policies with uncertain outcomes. small accidents. Internet URL: http://www. Ulrich. reference dependence is derived from behavior and the reference point arises endogenously. Findings are reported from two controlled experiments in which participants have a monetary incentive to learn from experience making investments to protect against hurricane risks. Daruvala. In this area the most common response from the general public is that they prefer avoiding many small accidents rather than one large accident while among the administrators there is almost an equal split between the two options. In most models of (cumulative) prospect theory. extreme environmental outcomes than low probability. Each homeowner determines whether or not to purchase an annual or multi-year contract so as to maximize her expected utility. Springer. Springer. Friedson. In particualr. Multi-year insurance has a fixed annual price for each year and no cancellations are permitted at the end of any given year. Andrew I. we estimate how non-economic damages caps affected pre-trial settlement speed and settlement amounts. Paul R. Fredrik. Robert J (2012). I find that most subjects tend to overweight extreme positive outcomes relative to expected utility in both the environmental and financial domains. Zank. Kunreuther. reference dependence is derived from behaviour and the reference point arises endogenously. reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. high-consequence. leading subjects to offer more support for mitigating environmental gambles than financial gambles with the same odds and equivalent outcomes. I elicit risk attitudes in the financial and environmental domains using multiple-price list experiment. reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. Insurers who offer annual policies can cancel policies at the end of each year and change the premium in the following year. The competitive equilibrium consists of a set of prices where homeowners who are not very risk averse decide to be uninsured. Investments are also found to be insensitive to the censoring effect of protection itself. I examine how subjects’ behavioral. Springer. Both groups of respondents were asked to assume the role of a public policy-maker and choose between different public safety projects. A genuine foundation for prospect theory. Springer. Dinky. Springer. This paper examines the demand and supply of annual and multi-year insurance contracts with respect to protection against a catastrophic risk in a competitive market. . [RKN: 45855] Journal of Risk and Uncertainty (2012) 45 (1) : 51-78. then for oil-spill risks. Single-year and multi-year insurance policies in a competitive market. Carlsson. the effect of the tort reform here can best be thought of as a 25% tax on the asset value of settlements that exempts settlements involving infants. Subjects are more likely to overemphasize low probability. Springer.openathens. Specifically. [RKN: 45856] Journal of Risk and Uncertainty (2012) 45 (1) : 79-95.openathens.17 pages. Maximum entropy (most likely) quantile regressions emphasize that the post-reform settlement effects most informative for policy evaluation differ greatly from OLS (mean) estimates and clarify the conclusion emerging. Jaldell. Kleindorfer. Internet URL: http://www. Other individuals demand either single-year or multi-year policies depending on their degree of risk aversion and the premiums charged by insurers for each type of policy. Horst (2012). and (iii) the trade-off between avoiding fatalities and serious injuries for different age groups and accidents. Chieh (2012). Homeowners are identical with respect to their exposure to the hazard. implying that the size of experienced losses—rather than losses that are avoided—is the primary driver of investment decisions. Zank. this reinforcement process produces a mean investment level below that which would be optimal for most storm threats. events. The social welfare effects of tort reform are less clear than the asset reduction effects due to likely health state dependent utility. subjective risk. Ulrich. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming reference-dependent preferences a priori. A stated preference survey was used to investigate the potential discrepancy between the priorities of public administrators and the general public regarding risk reductions. [RKN: 70238] Journal of Risk and Uncertainty (2012) 45 (2) : 135-157. Instead. [RKN: 45854] Journal of Risk and Uncertainty (2012) 45 (1) : 25-50. [RKN: 45873] Journal of Risk and Uncertainty (2012) 45(2) Our research examines how recent reforms have affected a key aspect of patients' implicit insurance present in medical malpractice torts. In most models of (cumulative) prospect theory. [RKN: 45901] Journal of Risk and Uncertainty (2012) 45(3) : 215-238. Furthermore. Springer. Wengström. Graham (2012).1007/s11166-012-9153-5 (access via Athens login http://www. Erik (2012). In contrast. [RKN: 45903] Journal of Risk and Uncertainty (2012) 45(3) : 265-292. In contrast.1007/s11166-012-9154-4 (access via Athens login http://www. In particular we focus on generalized Bayesian updating of the Jaffray–Philippe sub-class of Choquet Expected Utility preferences. Oliveria. Testing the ‘standard’ model of stochastic choice under risk. Grant. Experimental results on the Ellsberg paradox typically reveal behavior that is commonly interpreted as ambiguity aversion. David (2012).doi. An ever-increasing number of experiments attempts to elicit risk preferences of a population of interest with the aim of calibrating parameters used in economic models.org/10. Alex (2012). We find that both types of selection lead to a sample of experts: Participants perform significantly better than the general population. Andrea.openathens. DOI: http://dx. Catherine C. Springer. the principle of insufficient reason performed substantially better than rival theories in our experiment. while taller and nonwhite individuals are more risk tolerant. or within the random preference framework. This paper studies how updating affects ambiguity attitude. sampling from a student population leads to lower estimates of average risk aversion and loss aversion Internet URL: http://www. we evaluate the development of risk preferences.1007/s11166-012-9155-3 (access via Athens login http://www.org/10. Johnson. van Soest. School environment and risk preferences : Experimental evidence. [RKN: 45902] Journal of Risk and Uncertainty (2012) 45(3) : 239-263.org/10.doi. more moderate levels of risk aversion. Simon. How selection matters for estimated distributions of risk preferences. We consider one of the model’s key assumptions—that the noise around the subjective value of a risky option is independent of other features of the decision problem. We find a condition for updating on a given partition to preserve ambiguity attitude. Loomes. We find that both types of selection lead to a sample of experts: Participants perform significantly better than the general population. Finally. which many regard as the default—the Basic Fechner model. it dramatically reduces the amount of heterogeneity in all parameters. Angela C M de. Arthur. we study whether ambiguity increases or decreases after updating. Self-selection within a broad population does not seem to matter for average preferences. Lisa. [RKN: 70249] Journal of Risk and Uncertainty (2012) 45 (2) : 159-190.1007/s11166-012-9156-2 (access via Athens login http://www. cognitive and emotional development theories of risk preferences. Grossman.net von Gaudecker. Using a field experiment with high school students. Hans-Martin.We are concerned with two types of selection effects. individuals in schools with smaller class sizes and a higher percentage of educators with advanced degrees have higher. Wengström.openathens. The experiments reported in the current paper find the objective probabilities for drawing a red ball that make subjects indifferent between various risky and uncertain Ellsberg bets. Arthur. Kelsey.net/) Eckel. Models of stochastic choice are intended to capture the substantial amount of noise observed in decisions under risk. Rick K (2012).doi. Isoni.net/) Eichberger.doi. including the objective maximin and Hurwicz criteria. Butler. DOI: http://dx. Rojas. Wilson. the sure-thing principle. Jurgen.32 pages. We find that this assumption is systematically violated. We relate this to necessary and sufficient conditions for dynamic consistency. We find conditions for ambiguity attitude to be the same before and after updating. in the sense of fewer violations of revealed preference conditions. [RKN: 45900] Journal of Risk and Uncertainty (2012) 45(3) : 191-213. in the sense of fewer violations of revealed preference conditions. . Examining the impact of school characteristics on preference development reveals both peer and quality effects.net/) 37 . Ken.von Gaudecker. A necessary and sufficient condition for ambiguity attitude to be unchanged when updated on an arbitrary event is for the capacity to be neo-additive. Self-selection within a broad population does not seem to matter for average preferences. van Soest. David. sampling from a student population leads to lower estimates of average risk aversion and loss aversion parameters. Cathleen A. DOI: http://dx. individuals in schools with a higher percentage of students on free or reduced lunches (hence a higher proportion of low-income peers with whom to interact) are significantly more risk averse. which may affect the external validity of standard experiments: Sampling from a narrowly defined population of students ("experimenter-induced selection") and self-selection due to non-response or incomplete response of participants in a random sample from a broad population. Erik (2012). Contrary to our expectations. However the main patterns in our data can be accommodated by a more recent variant of the Fechner model. For the quality effect. Philip J.org/10. Hans-Martin. We are concerned with two types of selection effects. Experts in experiments. Stewart. They allow us to examine the predictive power of alternative principles of choice under uncertainty. which may affect the external validity of standard experiments: Sampling from a narrowly defined population of students (“experimenter-induced selection”) and self-selection due to non-response or incomplete response of participants in a random sample from a broad population. When is ambiguity–attitude constant?. with ambiguity aversion appearing only as a secondary phenomenon. We further discuss economic. DOI: http://dx. Experts in experiments.openathens. Data show demographic-related patterns: girls are more risk averse on average. and the principle of insufficient reason.net/) Binmore.openathens. How much ambiguity aversion? : Finding indifferences between Ellsberg's risky and ambiguous bets. Voorhoeve. For the peer effect. We present an experimental test of one model. Christian. An ever increasing number of experiments attempts to elicit risk preferences of a population of interest with the aim of calibrating parameters used in economic models. Springer. [RKN: 45875] Journal of Risk and Uncertainty (2012) 45(2) : 159-190.openathens. 20 pages. Appelt. We use state court data for all domestic violence-related arrests. we examine whether life expectancy is affected by the framing of expectations questions as either live-to or die-by. Specifically. Platt. Edi.org/10. [RKN: 71217] Journal of Risk and Uncertainty (2013) 46 (1) : 1-25. Assessing multiple prior models of behaviour under ambiguity. the ambiguity neutral subjects were better able to persuade ambiguity seeking and ambiguity incoherent subjects to adopt ambiguity neutral choice behaviour and. . In contrast. DOI: http://dx. and then estimate and predict using a mixture model over the contending theories. We found that interpersonal interactions without incentives to persuade have no effect on behaviour. It is also shown that a St. This study presents an empirical analysis of domestic violence case resolution in North Carolina for the years 2004 to 2010. Eric J (2013). John D (2013).openathens. 20% and 5%. The Smooth model appears the best. Ambiguity attitudes and social interactions: An experimental investigation. Blevins. Sloan. Life expectancy as a constructed belief: Evidence of a live-to or die-by framing effect. D’Alembert’s ratio test is used for a uniform treatment of the manifestations of the St. Conte. Stephanie C (2013). when incentives were introduced. Gary. Christian (2013). and few subjects display either ambiguity-averse attitudes or ambiguity-seeking attitudes. at least as set at the current levels. We found that a large majority of subjects display ambiguity neutral attitudes. Using an appropriate experimental interface we examine the fitted and predictive power of the various theories.30 pages. We propose that longevity beliefs are responses constructed at the time of judgment. and self-reported health. 22% and 3%. Karni. Based on our estimates. Lindsey M. Suzanne B. Anna. these figures are close to the mixing proportions obtained from the mixture estimates where the respective posterior probabilities of each of them being of the various types are 25%. Contrary to our hypothesis. Dan (2013). and leading to predictable biases. Petersburg Paradox and its solution proposals.openathens. Shu.doi. This finding led to the fielding of a third experiment to explore how risk preferences might vary as a function of BAC. also ambiguity averse subjects. Springer.1007/s11166-013-9165-9 (access via Athens login http://www. women were more risk averse than men at low BACs but exhibited increasing tolerance towards risks as BAC increased. Claire E (2013). We found gender-specific effects: Men did not exhibit variations in risk preferences across BACs. Springer. initiated the development of expected utility in the following three centuries. to a lesser extent. Petersburg Paradox can be solved or regained by appropriate transformations of the winnings or their utilities on the one hand or the probabilities on the other.Charness. Springer. Estimated mean life expectancies across three studies and 2300 respondents were 7. Petersburg Paradox. . This last feature is novel for the analysis of the St. Petersburg Paradox is provided. Life expectations are essential inputs for many important personal decisions. we use an instrumental variables strategy based on decisions of prosecutors and judges assigned to each index arrest in our sample. An expected utility maximizer walks into a bar. Individuals have prior beliefs about penalties for domestic violence based on actual practice in their areas. 53%.. later called the St. Johnson. Nicolas Bernoulli’s discovery in 1713 that games of hazard may have infinite expected value. do not deter future arrests and convictions. as well as by factors that actually affect longevity such as age. Petersburg paradox at 300.net/) 38 . 11% with Rank Dependent Expected Utility and 9% with the Alpha Model. 50%.doi. We found that individuals with BACs well above the legal limit for driving adhere to GARP and independence at rates similar to those who are sober. 56% with the Smooth Model. Frank A.1007/s11166-013-9167-7 (access via Athens login http://www. To address the first question we conducted experiments involving individual choice between betting on ambiguous and unambiguous events of the subject’s choice. We first estimate subject-by-subject. Decisions to commit an act of domestic violence are based on a Bayesian process of updating subjective beliefs. Alyssa C. We find that individuals in a live-to frame report significantly higher chances of being alive at ages 55 through 95 than people in a corresponding die-by frame. The key hypothesis is that penalties at the level set for domestic violence crimes reduce recidivism (re-arrest on domestic violence charges or conviction in 2 years following an index arrest). [RKN: 71219] Journal of Risk and Uncertainty (2013) 46 (1) : 51-80. To address endogeneity of case outcomes. Springer. Petersburg Paradox. Payne. . We conducted field experiments at a bar to test whether blood alcohol concentration (BAC) correlates with violations of the generalized axiom of revealed preference (GARP) and the independence axiom. An account of the origin and the solution concepts proposed for the St. [RKN: 46093] Journal of Risk and Uncertainty (2013) 46 (3) : 215-246. Springer. men and women’s risk preferences are predicted to be identical at BACs nearly twice the legal limit for driving. The recent spate of theoretical models of behaviour under ambiguity can be partitioned into two sets: those involving multiple priors and those not involving multiple priors. The St. Sagara. [RKN: 71487] Journal of Risk and Uncertainty (2013) 46 (2) : 113-132.org/10. .25 pages. gender. Paul W. Deterring domestic violence: Do criminal sanctions reduce repeat offenses?. Glimcher. Kirstin C. We discuss the implications for policy-makers. DOI: http://dx. An individual’s experience with an index arrest leads to belief updating. and using the predictions 22%. John W. We are additionally able to show how this framing works on a process level and how it affects preference for life annuities. Chepke. Implications for models of financial decision making are discussed. Burghart. many others display ambiguity incoherent attitudes. Daniel R. However.17 years longer when solicited in a live-to frame. [RKN: 71218] Journal of Risk and Uncertainty (2013) 46 (1) : 27-50. Lazzaro. The individual estimates suggest that 24% of our 149 subjects have behaviour consistent with Expected Utility.. [RKN: 46094] Journal of Risk and Uncertainty (2013) 46 (3) : 247-264. we find that penalties. Namika..38 to 9. This paper provides an experimental investigation into the first set. subject to irrelevant task and context factors. To address the second question we designed a new experiment with a built-in incentive to persuade. Hey.net/) Seidl.24 pages. Levin. This paper reports the results of experiments testing prevalence of non-neutral ambiguity attitudes and how these attitudes change as a result of interpersonal interactions. We use a dataset for a demographically representative sample of the Dutch population that contains a revealed preference risk attitude measure. This interaction between cognitive ability and hypothetical setting is consistent with the notion that some individuals. Springer. allows the precise estimation of both risk aversion and risk seeking. our data suggest that the link between risk aversion and religion is driven by social aspects of church membership. avoids truncation of the data. The economic theory of decision making under risk has seen remarkable advances over the 50 years since Pratt’s (1964) characterization of risk aversion under expected utility. The Arrow-Pratt (A-P) definitions of absolute and relative risk aversion dominate the discussion of risk aversion and defining “more risk averse”. as measured by church membership or attendance. Gijs.S.doi.g.Miller. which translates into lower post approval drug risks. I collect data on subjects’ risk attitudes using real and hypothetical risky choices. This result implies that foreign market experience prior to U. drug launch signals information about unobserved application quality. van de Kuilen. Wagner. are more risk averse with regard to financial risks. Other properties and uses of these normalized measures of concavity are also presented. Charles N. ..1007/s11166-013-9166-8 (access via Athens login http://www. Christian.openathens. Filippin. 1981) notes. For each.1007/s11166-013-9168-6 (access via Athens login http://www. Alexander F. Second. Nicolas (2013). drugs that are first launched in the U. We review developments in three key areas to which Louis Eeckhoudt has made significant contributions: (1) increases in risk and risk taking. drugs having longer U. Richard J (2013). Nolan. patients. the ratio of the more risk-averse type’s marginal utility to that of the other type is unbounded above (e.S. Risk aversion and religion. Mary K (2013). we identify seminal papers.S. [RKN: 76001] Journal of Risk and Uncertainty (2013) 47 (1) : 31-66. [RKN: 46095] Journal of Risk and Uncertainty (2013) 46 (3) : 265-297. Third.30 pages. However.g. Ross (Econometrica 49:621–663.. 39 . Springer. Second. Eliminating the U. . Vellekoop. [RKN: 46096] Journal of Risk and Uncertainty (2013) 46 (3) : 299-320. . we find strong confirmatory evidence that more religious people. Our experiment rationalizes the gender gap that often characterizes choices under uncertainty by means of a higher loss rather than risk aversion. that being A-P more risk averse is not sufficient for addressing many important comparative static questions.org/10. First. Hammitt. An increase in new drugs first launched in the U. as with CRRA).openathens. Bias and brains: risk aversion and cognitive ability across real and hypothetical settings.S. Consequently he introduces “a new and stronger measure for comparing two agents’ attitudes towards risk…”. When.org/10. however. one of which contains a bomb. The “bomb” risk elicitation task. to study three issues. Subjects decide how many boxes to collect out of 100. Liu. [RKN: 76000] Journal of Risk and Uncertainty (2013) 47 (1) : 1-30. Zeckhauser. test its robustness in a large-scale experiment. the principal can screen agents and bolster target efficiency by offering a choice between a nonrandom budget and a two-outcome risky budget. Matthew P (2013). The BRET requires minimal numeracy skills. rather than by religious beliefs themselves. drug lag: Implications for drug safety. Paolo. First. either materially or because of altruism. may treat hypothetical choices as “puzzles. Treich. and is not affected by the degree of loss aversion or by violations of the Reduction Axiom. an intuitive procedure aimed at measuring risk attitudes. but it is unrelated when the choices are real. This paper examines the impact of these changes on drug safety using adverse drug reaction data for FDA-approved drugs in 1990 to 2004. DOI: http://dx. [RKN: 74078] Journal of Risk and Uncertainty (2013) 47 (2) : 165-183. launch lags (more foreign market experience) have fewer post approval drug risks compared to drugs with shorter launch lags. Stefan T. Antonio (2013).net/) Taylor.net/) Olson. A principal provides budgets to agents (e. The saga of research on these topics reveals that important contributions were made long ago and yet significant gains in understanding continue to be made. Noussair. We validate the BRET. I also measure their cognitive ability using the cognitive reflective test (CRT).doi. DOI: http://dx. [RKN: 74079] Journal of Risk and Uncertainty (2013) 47 (2) : 185-198.17 pages. Solomonic separation: risk decisions as productivity indicators.36 pages. as well as detailed information about participants’ religious background. Results show two different effects. Meyer.” and provides one potential explanation for why some studies find that subjects indicate that they are more tolerant of risk when they make hypothetical choices than when they make real choices.S. at very low allocations. we obtain some evidence that Protestants are more risk averse than Catholics in such tasks. James K. We prove that if the more “productive” agents are also more risk-tolerant (as holds in the sample of individuals we surveyed).S. the first-best is approached. divisions of a firm or the principal’s children) whose expenditures provide her benefits.—A biblical opening enlivens the analysis. Liqun. Only agents know their potential to generate benefits. On average. [RKN: 74076] Journal of Risk and Uncertainty (2013) 47 (2) : 129-145. measured risk preferences are not significantly different across real and hypothetical settings. Recent advances often have roots in early results and researchers can profit by examining the old as well as the new papers.S. Risk and choice: A research saga. and are sensible to wealth effects. cognitive ability is inversely related to risk aversion when choices are hypothetical.14 pages. have fewer serious drug reactions compared to those that were first launched abroad. This result is surprising. (2) self-protection and risk aversion. Normalized measures of concavity and Ross’s strongly more risk averse order. and compare it to three popular risk elicitation tasks. Earnings increase linearly with the number of boxes accumulated but are zero if the bomb is also collected. Trautmann. puzzles. This paper uses a normalized measure of concavity to characterize the Ross definition of strongly more risk averse on bounded intervals. specifically higher-ability individuals. Gollier.S. Springer.S. Choices react significantly only to increased stakes. and may suggest that first U. This paper presents the Bomb Risk Elicitation Task (BRET). entry provides information to help alleviate drug-related risks for U. approval indicate that the U. drug lag has declined. and (3) higher (and lower) order derivatives of utility. . and shorter lags between first global drug launch and U. Ross does not provide a corresponding measure of risk aversion. Crosetto. 19 pages. and recent developments. Jack (2013). Nathanael (2013). Our within-subject design allows us to study violations of the independence and dynamic axioms: Dynamic Consistency. l’Haridon. Tianjun. Choquet expected utility. Diego (2013). Linear-in-Log-Odds) emerging as the most common best-fitting models. . Consequentialism and Reduction of Compound Lotteries. This paper investigates its predictive power for decisions under ambiguity. Clotilde. Daniel R.Jouini.15 pages. and three multiple priors theories: maxmin expected utility. D (2014). While several different parametric forms have been proposed. Spinu. [RKN: 74171] Journal of Risk and Uncertainty (2013) 47 (3) : 311-325. Moreover. Nebout. Pitt. These findings challenge the current practice in modeling intertemporal choice where sign-dependence is largely ignored and only decreasing impatience is allowed. Mark A. Hammitt. Yitong. Elyès. . Cavagnaro. In this paper. We investigate the effects of changes in probability and outcome levels on the pattern of choices observed in the Common Ratio Effect (CRE) and in the Reverse Common Ratio Effect (RCRE) and on their dynamic counterparts. The deviations from constant discounting that we observed were more pronounced for losses than for gains. . more than one quarter of our subjects satisfy the Independence axiom but violate two dynamic axioms. Peter P (2014). Sign-dependence in intertemporal choice. their qualitative similarities make it challenging to discriminate among them empirically. maxmax expected utility. Vitalie.26 pages. We establish necessary and sufficient conditions for unambiguous impact of Nth-degree risk increases on optimal decision making. Jay I (2013). and play a central role in modeling choices under risk within cumulative prospect theory. James K (2013). and find that first valuing the worst outcome and then the lottery eliminates the uncertainty effect. A. We study comparative statics of Nth-degree risk increases within a large class of problems that involve bidimensional payoffs and additive or multiplicative risks. we examine how providing an exogenous evaluation opportunity prior to judging the value of the lottery affects individuals’ judgments. We find that the probability level plays an important role in violations of Reduction of Compound Lottery and Dynamic Consistency and the outcomes levels in violations of Consequentialism. Springer. [RKN: 74170] Journal of Risk and Uncertainty (2013) 47 (3) : 291-310. Springer. conditional on wealth. The findings shed light on assumptions underlying these models. When Allais meets Ulysses: Dynamic axioms and the common ratio effect. Our paper aims to explore the boundary conditions of the uncertainty effect by investigating a plausible underlying process and proposing two possible methods. . . a computer-based methodology that identifies and exploits model differences for the purpose of model discrimination. and wealth: Integrating monetary and life-year measures.29 pages. Feng. Olivier (2013). we explore whether introducing additional cognitive load dampens how far decision makers correct their initial evaluations. and a-maxmin expected utility. Keller. the sign-dependent model of Loewenstein and Prelec (1992) with the constant sensitivity discount function of Ebert and Prelec (2007) provided the best fit to our data. We develop a simple and intuitive approach to interpret these conditions : novel notions of directional Nth-degree risk aversion that are characterized via preferences over lotteries. disability-adjusted life years). Abdellaoui. I derive the utility function that is admissible when preferences for health and longevity. . longevity. with two models (Prelec-2. [RKN: 74080] Journal of Risk and Uncertainty (2013) 47 (2) : 199-224. The value of reducing health and mortality risks is often measured using value per statistical life (VSL) or one of several life-year measures (e. using its specification through the source method. Kothiyal. longevity. Mohammed. L Robin (2013). and current-period survival probability. Our data also suggest that the discount function should be flexible enough to allow for increasing impatience. Springer. Second. Prospect theory is the most popular theory for predicting decisions under risk.g. are consistent with any life-year measure (LYM) and examine the implications for marginal willingness to pay (WTP) for increases in health. life years.17 pages..35 pages. Individual valuation of a binary lottery at values less than the lottery’s worst outcome has been designated as the “uncertainty effect”. Wang. Discriminating among probability weighting functions using adaptive design optimization. The results of an empirical experiment reveal heterogeneity between participants in terms of the functional form. We find that it outperforms its most popular alternatives. Bleichrodt. Han. I conclude that marginal WTP for any LYM is decreasing and that VSL is increasing in the LYM. We report experimental findings about subjects’ behavior in dynamic decision problems involving multistage lotteries with different timings of resolution of uncertainty. Economic consequences of Nth-degree risk increases and Nth-degree risk attitudes. quality-adjusted life years. . Overall. [RKN: 73757] Journal of Risk and Uncertainty (2014) 48 (1) : 1-17. Springer. Allowing for sign-dependence in discounting substantially improves the description of people’s time preferences. These results imply that cost-effectiveness analysis using a fixed monetary value per LYM is not consistent with economic welfare theory and that the benefit of a health improvement cannot be calculated by multiplying the change in a LYM by a constant. An experimental test of prospect theory for predicting choice under ambiguity. Springer. [RKN: 73758] Journal of Risk and Uncertainty (2014) 48 (1) : 19-49. and find that additional cognitive load is able to eliminate the uncertainty effect. Amit. Dubois. Springer. Probability weighting functions relate objective probabilities and their subjective weights. 40 . A further exploration of the uncertainty effect.20 pages. including subjective expected utility. First. We thus suggest that there is a greater dissociation that might have been expected between preferences captured by dynamic axioms and those observed over single-stage lotteries. Admissible utility functions for health. Wakker. Gonzalez. Myung. The simulation experiments show that the correct (data-generating) form can be conclusively discriminated from its competitors. Springer. Nocetti. Napp. Richard. [RKN: 74169] Journal of Risk and Uncertainty (2013) 47 (3) : 255-289. [RKN: 74168] Journal of Risk and Uncertainty (2013) 47 (3) : 225-253.31 pages. we use both simulation and choice experiments to investigate the extent to which different parametric forms of the probability weighting function can be discriminated using adaptive design optimization. 1952) identified a fourfold pattern of risk preferences in outcome magnitude: When outcomes are large. Hoy. Fountain. W Kip. Richard. . Thomas J. zero private value. If the genetic test facilitates better decision-making for at least one possible test outcome. [RKN: 74480] Journal of Risk and Uncertainty (2014) 48 (3) : 207-229. Harris (2014). Take-up for genetic tests and ambiguity. An important implication for policy is that it is reasonable to use labor market estimates of VSL as a measure of the willingness to pay for additional safety.Mirman. Viscusi. but rather the riskiness of the utility gamble associated with each decision. then it has positive private value. classical demand theory. There is no statistically significant divergence between willingness-to-accept VSL estimates associated with wage increases for greater risks and willingness-to-pay VSL estimates as reflected in wage changes for decreases in risk. Andersen. Springer.16 pages. We show that the effect of risk aversion on optimal behavior depends on the income and substitution effects. Especially noteworthy are the complementary roles of theory and experiments.20 pages. This theoretical result seems to contradict the fact that empirically observed take-up rates for genetic tests are surprisingly low. 1979. Scholten. Moreover. Marc. Jorg. Springer. Tversky and Kahneman Journal of Risk and Uncertainty 5:297–323. [RKN: 73759] Journal of Risk and Uncertainty (2014) 48 (1) : 51-66.17 pages. we study the effect of risk aversion on optimal behavior in a general consumer’s maximization problem under uncertainty. Springer. We illustrate this approach using data from a controlled experiment with real monetary consequences to the subjects. 361–388. a costless genetic test that does not affect optimal decisions is never taken. On risk aversion. Read. 1974)’s formulation of risk aversion in the case of multidimensional utility functions. . Our research clarifies the conceptual linkages among willingness to pay for additional safety. but risk preferences reverse when the outcomes are small. Harrison. The reason is that. 8(3). An experimental investigation of risk sharing and adverse selection. Potters.12 pages. As behavioral models become more integrated into economics and finance. 23 pages. Springer. both quantitatively and qualitatively. Schiller. many of their effects are illustrated quite well within insurance markets. 41 . and speculate about why Tversky and Kahneman did not address Markowitz’s fourfold pattern. Across treatments we vary how risk profiles differ between individuals. Our baseline VSL estimates are $7. Andreas (2014). We demonstrate that if individuals display ambiguity aversion. while still employing relatively simple elicitation mechanisms. Building on Kihlstrom and Mirman (Journal of Economic Theory. with a normalized logarithmic value function than with a normalized exponential value function. John. . . Richter. Riedl. at worst. We pay special attention to several models of underinvestment in insurance or in other risk-mitigation markets. Several procedures to recover subjective probabilities have been proposed. Jan. This fourfold pattern was not addressed by either version of prospect theory (Kahneman and Tversky Econometrica 47:363–391.3 million (Y$2001). We find strong evidence for adverse selection if individuals’ risk profiles can be ranked according to first-order stochastic dominance and only little evidence for adverse selection if risk profiles can only be ranked according to mean-preserving spreads. willingness to accept less safety. Springer. [RKN: 73761] Journal of Risk and Uncertainty (2014) 48 (2) : 85-96. and the value of a statistical life (VSL). Ziliak. We completely characterize the relationship between changes in risk aversion and classical demand theory. E Elisabet (2014). [RKN: 73763] Journal of Risk and Uncertainty (2014) 48 (2) : 111-133. We show how prospect theory can accommodate the pattern by combining an overweighting of low probabilities with a decreasingly elastic value function. Springer. Does adverse selection hamper the effectiveness of voluntary risk sharing? How do differences in risk profiles affect adverse selection? We experimentally investigate individuals’ willingness to share risks with others.23 pages. but in order to recover the correct latent probability one must either construct elicitation mechanisms that control for risk aversion. Springer. Marc (2014). Santugini. Estimating subjective probabilities. Furthermore. We then examine the performance of prospect theory with two decreasingly elastic value functions: Prospect theory performs better. This allows the observer to make inferences about the latent subjective probability. Our focal result contrasts with the literature documenting a considerable asymmetry in tradeoff rates for increases and decreases in risk. Under the expected utility hypothesis a costless genetic test has. Leonard J. Kniesner. Franziska. This article reviews the interactive role of experiments and theory in analyzing insurance demand from a behavioral perspective. there is a trade-off between aversion against uncertainty of test results and utility gains from better decision-making if optimal decisions depend on the level of information. Michael. 1992). . Steffen. James P (2014). Peter. Glenn W. Daniel (2014). We observe the same pattern also for anticipated adverse selection. This happens if it does not affect optimal decisions. and KM preferences. unless controlled for. under virtually any well-specified model of choice under subjective risk. Subjective probabilities play a central role in many economic decisions and act as an immediate confound of inferences about behavior. Andreas. people are risk averse in gains and risk seeking in losses. Tausch. These results suggest that the degree to which adverse selection erodes voluntary risk sharing arrangements crucially depends on the form of risk heterogeneity. [RKN: 74479] Journal of Risk and Uncertainty (2014) 48 (3) : 187-205. Behavioral insurance: Theory and experiments. Arno (2014). Ambiguity aversion regarding test results thus provides an explanation for low take-up rates for genetic tests. We illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration adjustments that theory calls for.19 pages. the effect of risk aversion is determined not by the riskiness of the risky good. Prospect theory and the “forgotten” fourfold pattern of risk preferences. [RKN: 73760] Journal of Risk and Uncertainty (2014) 48 (1) : 67-83. Rutström. [RKN: 73765] Journal of Risk and Uncertainty (2014) 48 (2) : 167-186. or construct elicitation mechanisms which undertake “calibrating adjustments” to elicited reports. with people exhibiting risk seeking in gains and risk aversion in losses. We discuss several issues.7 million and $8. Schlesinger. from an ex-ante view. . Richter. Markowitz (Journal of Political Economy 60:151–158. a genetic test introduces uncertainty of probabilities which diminishes the value of information to an ambiguity-averse decision-maker. Willingness to accept equals willingness to pay for labor market estimates of the value of a statistical life. We present econometric estimates using panel data to analyze the VSL levels associated with job changes that may affect the worker’s exposure to fatal injury risks. “Risk and insurance” provides an illustrative set of decisions made in the presence of uncertainty. Springer. Michal (2014). and temperance. Springer. where decision makers typically prefer risky over ambiguous prospects. This supports a recent theoretical observation that prudence may be a more universal trait than previously realized. [RKN: 74490] Journal of Risk and Uncertainty (2014) 49 (2) : 167-188. [RKN: 74485] Journal of Risk and Uncertainty (2014) 49 (1) : 43-71. Ert. Springer. 68(5). People often need to choose between alternatives with known probabilities (risk) and alternatives with unknown probabilities (ambiguity). we obtain data from which we can estimate by maximum likelihood methods (with explicit assumptions about the errors made by the subjects) a significant subset of particular parameterisations of the empirically relevant models of behaviour under ambiguity. and compare these perceptions to individually predicted risk based on epidemiological models.but also the higher-order risk preferences of prudence and temperance . Gregory S (2014). particularly the more theoretically sophisticated ones. mammograms. but the transfer of risk from principal to agent may change the perception of risk. Berns. Perceptions of the level of risk are less accurate if a respondent is female and has poor numeracy skills. Most studies of ambiguity attitudes have focused on the static case of single choice. Springer. especially women. The neural correlates of contractual risk and penalty framing. Peter (2014). We find evidence for risk aversion. . The explanatory and predictive power of non two-stage-probability theories of decision making under ambiguity. appear to be aware of some of the qualitative relationships between risk factors and probabilities. prospect theory can predict this behavioral pattern. Probability perceptions and preventive health care. W Gavin. John D. Joint measurement of risk aversion. Navarro-Martinez. In the expected utility of wealth changes model. and aspirin. Daniel (2014). These traits correlate within subjects. [RKN: 74482] Journal of Risk and Uncertainty (2014) 48 (3) : 253-283. In particular. Carman. even after controlling for individually predicted risk using epidemiological models. Andrew M. Lewandowski. . we used functional magnetic resonance imaging (fMRI) to observe brain activity while participants viewed the contracts and purchased precautionary measures. We propose a method to jointly measure the intensity of risk aversion.31 pages. We study the effect of perceptions in comparison with more objective measures of risk on individuals’ decisions to decline or accept risk reducing interventions such as flu shots. Sabater-Grande. . and compare their relative explanatory and predictive abilities. Daniel. which are distinct from risk attitudes. both in its general as well as some specific forms. Pae.22 pages. in which initial wealth is allowed to be small. In our second experiment. the dominant models of economic decision making.Ebert. and risk-neutral subjects are prudent. Standard economic theory treats contractual risk the same as risk experienced in a lottery. Noemi (2014). Trautmann. Having faced worse options in the past significantly increases individuals’ risk aversion and having faced better options reduces it. and temperance. We find that perceived probabilities significantly affect the subsequent take-up rate of flu shots. . Eyal.29 pages. and temperance. Jaramillo-Gutierrez. which does not allow arbitrage. Within the same model the classical preference reversal which allows arbitrage is not possible. However. . 1281–1292. Kooreman. Springer. We designed an experiment that tested the effect of bonus and penalty framed contracts on behavior under an implicit chance of failure. The role of forgone opportunities in decision making under risk. In the expected utility of gambling wealth model. Ekins. [RKN: 74488] Journal of Risk and Uncertainty (2014) 49 (2) : 125-140. [RKN: 74483] Journal of Risk and Uncertainty (2014) 49 (1) : 1-29. These patterns are at odds with most existing decision theories. Our results suggest that not all recent models of behaviour represent a major improvement in explanatory and predictive power. and aspirin for the prevention of heart disease. Such decisions are characterized by attitudes towards ambiguity. in which there is no initial wealth. The study suggests that risk experienced by agents in an incentive contract is not comparable to risk experienced as a lottery. In the first one. This effect can only partly be explained by the updating of probabilistic beliefs. including Expected Utility Theory and standard implementations of Prospect Theory. Moreover. Brooks. we face individuals with a dynamic environment in which their decisions. Hey. Representing ambiguity in the laboratory using a Bingo Blower (which is transparent and not manipulable) and asking the subjects a series of allocation questions. Gerardo (2014). determine their future options. risk-loving. mammograms. I analyze two expected utility models which abandon the consequentialist assumption of terminal wealth positions.22 pages. prudence. with and without the interventions. Barreda-Tarrazona. However. The compensations elicited for prudence are significantly larger than those for risk aversion and temperance. whereas preference reversal (involving buying prices in place of selling prices). Risk aversion . in many situations. Springer. prudence. Ivan. We present two experiments designed to study the role of forgone opportunities in decision making under risk. decision makers may be able to sample outcomes of an ambiguous alternative. we elicit individuals’ subjective probabilities of risk.12 pages. . Previous experimental studies have shown that positive and negative framing affects both gambles and incentive contracts. Buying and selling price for risky lotteries and expected utility theory with gambling wealth. We find that previously faced opportunities influence subsequent choices in predictable ways. 2000) paradox may be resolved. is possible. allowing for inferences about its probabilities. Sebastian. Katherine Grace. together with chance. We found that the dorsal striatum was more active during a penalty frame than a bonus frame. In contrast to commonly used utility functions. The current paper finds that such sampling experience reverses the pattern of ambiguity attitude observed in the static case. suggesting a direct effect of sampling on attitudes toward ambiguity. [RKN: 74484] Journal of Risk and Uncertainty (2014) 49 (1) : 31-42. Wiesen. risk-averse. I show that a large WTA/WTP gap is possible and the (Rabin in Econometrica.29 pages.are fundamental concepts in the study of economic decision making. prudence. An agent’s perception of bonus and penalty framing in a contract can determine the extent to which lottery risk and contractual risk are similar. Springer. but 42 . Respondents. we present participants with a similar decision environment. I show that both a WTA/WTP gap as well as the classical preference reversal are possible due to loss aversion. . [RKN: 74481] Journal of Risk and Uncertainty (2014) 48 (3) : 231-252. In our experiment. and in an experiment we elicit these compensations with a price list technique. on average they have very poor perceptions of the absolute probability levels as reported in the epidemiological literature.16 pages. Our theoretical approach is to define risk compensations of different orders. Ainhoa. Stefan T (2014). Sampling experience reverses preferences for ambiguity. There is no independent review of the strategic risks taken by many firms. the paper reviews the existing data quality regulations in the financial sector. the centralised data approach is combined with a sensitivity technique in order to obtain more effective data quality strategies and indicators. Karol M (2012). involving the integration of risk and finance data. proposing long overdue principles of good corporate governance. The governance of strategic risks in systemically important banks. ICGN corporate risk oversight guidelines : The role of the board and institutional shareholders. Secondly. JOURNAL OF RISK MANAGEMENT IN FINANCIAL INSTITUTIONS Koenig. Klimczak. [RKN: 45689] Journal of Risk Management in Financial Institutions (2012) 5(2) : 112-114. As a result. Henry Stewart Publications. Bonollo. First. Massimiliano (2012). strategic risk management. because of the immense uncertainty in the global economy. Among the many market weaknesses highlighted by the global financial crisis. Neri. In order to tackle this subject a four-step analysis is proposed. The effect of previously faced options on decision behavior in this environment is considerably reduced.in which the opportunities they face do not depend on their past choices. This paper considers the governance of strategic risks. but also the investors' responsibilities in oversight and their communication with the companies. Henry Stewart Publications. The first reveals that distant cash flows are over discounted and the second suggests that self-defined time horizons are ineffective and ignored. a best practice proposal is made for banks in a centralised approach to risk data. [RKN: 45690] Journal of Risk Management in Financial Institutions (2012) 5(2) : 115-127. from a fundamental conflict of interest in that the board and management ‘own’ a firm's strategy but they are at the same time also responsible for implementing the strategy and managing the strategic risks. Henry Stewart Publications. in part. the sounding board and contributors of comment letters. Oversight of risk has become a significant issue in the corporate governance debate following the failure of traditional institutions. [RKN: 45688] Journal of Risk Management in Financial Institutions (2012) 5(2) : 108-111. However. however. Breen. the entire corporate system lacks its energising foundation and a very significant risk arises from the relative absence of the effective monitoring and supervising energy that those with ‘ownership’ interests are more likely to provide. Henry Stewart Publications. Clearfield. McConnell. Since the beginning of the financial crisis in 2007. most especially systemically important banks (SIB). The ICGN Guidelines reflect a consensus achieved during a year of discussions between technical committee members. Jon (2012). In the aftermath of the crisis. identifying areas of deficiency of governance of strategic risk in practice. Properly assessing time is fundamental to risk governance and risk management. Andrew. The governance of risk : Guest editorial. is not a well-developed discipline. summarising briefly the requirements in Basel II and in Solvency II (the first regulation that provided formal requirements for data quality). the main one being the silo organisation of risk data. Should rights afforded to such passive capitalists be equal to those whose ownership engagement with a corporation is personal and direct? Without the involvement of active and engaged shareholders. Patrick (2012). Michele. Thirdly. Finally. which underscores the relevance of emotions linked to counterfactual thinking. the widespread failures of corporate governance and risk management were identified by official inquiries as being critical. [RKN: 45693] Journal of Risk Management in Financial Institutions (2012) 5(2) : 146-161. David R (2012). The modern meaning of shareholder has morphed from an engaged owner to a passive provider of capital. the quality of risk data has become a subject of concern for risk managers in banks and other financial institutions. The lack of maturity in the discipline stems. Strategic risk is arguably. two recent studies reveal systemic weaknesses in how accurately future events are discounted. like regret or satisfaction. Robert A G (2012). Henry Stewart Publications. Henry Stewart Publications. Our inability to judge time frames. [RKN: 45692] Journal of Risk Management in Financial Institutions (2012) 5(2) : 143-145. Data quality in banking : Regulatory requirements and best practices. The purpose of this paper is to present the ICGN Guidelines with a commentary linking it to the current debate and developments in the corporate world. Monks. banking regulatory bodies have responded. These results highlight that theories formulated in cognitive terms are not enough to provide an adequate account of the role of forgone opportunities in decision making under risk and uncertainty. 43 . Erik. which constitutes a serious deficiency in corporate governance. the International Corporate Governance Network (ICGN) developed the ‘ICGN Corporate Risk Oversight Guidelines’ to help institutional investors assess how effectively the boards of their portfolio companies carry out their oversight function regarding financial and non-financial risk. the issues associated with risk data quality in the banking sector are examined. [RKN: 45691] Journal of Risk Management in Financial Institutions (2012) 5(2) : 128-142. in particular tightening up on the roles and responsibilities of boards of directors. who represented various institutions and jurisdictions across the world. the greatest risk facing any firm. Risk and the shareholder. These debates have culminated in a document that discusses not only the board and company process of risk management and risk oversight and disclosures concerning financial and non-financial risks. Lukomnik. or the management of the risks to a firm's long-term corporate strategy. using Lehman Brothers as a case study. The paper also proposes some potential solutions to help address such governance problems. This shows that being responsible for forgoing opportunities is an important factor in their influence on behavior. Stamm. However. Klaus. views and open issues : Comment. stress testing and value-at-risk (VaR). Kallman. banks’ credit exposure models must be calibrated to a period of stress. create an internal risk intelligence function and. policies. The paper proposes a new model of governance and risk management consisting of four components: (i) board risk oversight responsibilities. Eduardo. Enterprise risk management (ERM) and knowledge management (KM) both encompass top-down and bottom-up approaches developing and embedding risk knowledge concepts and processes in strategy. The governance of value(s). and the use of the integral view of RM as a governance and compliance programme to support the value-driven management of the organisation. [RKN: 45696] Journal of Risk Management in Financial Institutions (2012) 5(2) : 194-210. Dan. it is argued that stress calibration of exposure does not address general WWR adequately. The capacity to transfer risk knowledge affects all stakeholders and understanding of the risk knowledge about the enterprise's value is a key requirement in order to identify protection strategies for business sustainability. (ii) a board level risk committee. [RKN: 45706] Journal of Risk Management in Financial Institutions (2012) 5(3) : 224-226. [RKN: 45707] Journal of Risk Management in Financial Institutions (2012) 5(3) : 227-233. economic capital and collateralised exposures with margins. It further provides a model risk framework for assessing both general and idiosyncratic WWR. exposure simulation. but also the EAD seen in the stressed period. in addition to normal calibration. the decision-making process and business processes. Potential relationships among the variables are investigated using descriptive statistics and multivariate statistical models. other companies still have the option of adopting these best practices. Henry Stewart Publications. the board level risk committee should have an independent member with extensive risk management experience.Rodriguez. Henry Stewart Publications. ERM implementation demands better capabilities for unification of the criteria of risk analysis. Michael (2012). Narvaez. Edwards. Henry Stewart Publications. Henry Stewart Publications. however. management should form an executive risk committee. John S (2012). These issues include credit value adjustment. Simple examples are used to show that EADs obtained with stress calibration for a benign period will severely overstate not only the EAD seen in that benign period. the clearing of transactions centrally to improve transparency and reduce intra-financial system debt. Kristina (2012). In this paper we present a personal selection of issues related to CCR measurement which we consider still unresolved or at least controversial. Roland (2012). The case where the counterparty exposure increases when its credit quality deteriorates is commonly referred as wrong-way risk (WWR). if these are done. 44 . Counterparty credit risk (CCR) is a central topic for any modern financial institution's risk management. which allows the performance of multiple CVA calculations for sensitivities. Saunders. easy to implement and computationally efficient. to be published by John Wiley & Sons. Transferring knowledge of risk management to the board of directors and executives. John. Haldane. David (2012). The conversion is done at a counterparty level via a simple closed-form function of a single parameter that controls the strength of general WWR. The new model of governance and risk management for financial institutions. The level of understanding of risk management policies and reports by the board is related to the quality of the flow of communication in the firm and perceived level of integration of the risk policy in the business processes. The ERM mandate. Psychological influences such as loss avoidance are greatly underappreciated and forms of corporate governance like network governance can play an important role in minimising the impact of these factors. have a chief risk officer. requires for its implementation a clear understanding of risk management (RM) policies. On counterparty risk : Lead comment. Counterparty credit risk : News. Risk and Value Creation. These capabilities can be affected by risk knowledge sharing between the RM group and the board of directors and other executives in the organisation. David R (2012). A conceptually sound method of incorporating general wrong-way risk (WWR) into the asymptotic single risk factor (ASRF) framework that underlies Basel capital rules is shown in the first part of this paper. Steve. James. The second part of the paper analyses the Basel III requirement that. Lindo. Communication among groups appears as a significant variable in improving risk control but only as a weak factor in improving the perceived value of ERM. actions and results. the board should develop a clear risk position. Some companies are subject to the Dodd–Frank Act and are forming a stand-alone risk committee. Henry Stewart Publications. Basel III justified the introduction of stress calibration by the need for capturing general WWR. and stress testing both the factors driving correlations as well as the strength of the correlations. A robust method is presented to calculate CVA with WWR that is intuitive. [RKN: 45708] Journal of Risk Management in Financial Institutions (2012) 5(3) : 234-251. Rosen. General wrong-way risk and stress calibration of exposure. the audit committee should complement the risk management committee. Pykhtin. Koenig. [RKN: 45694] Journal of Risk Management in Financial Institutions (2012) 5(2) : 162-180. risk appetite definition. [RKN: 45709] Journal of Risk Management in Financial Institutions (2012) 5(3) : 252-272. Bocker. A survey to risk management executives from 65 firms in various industries was undertaken and 108 answers were analysed. valuation in general and model risk. There are various factors that affect this capacity for transferring and understanding. along with enhancing the ability of organisations to create value. (iii) an executive risk committee and (iv) an individual with responsibility for overall risk management. Furthermore. Henry Stewart Publications. Based on excerpts from Governance Reimagined: Organizational Design. The financial crisis demonstrated the inadequacy of the management of counterparty credit risk and the vulnerability of financial structures to counterparty concerns. alignment of policies and protection guidelines across the organisation. An algorithm is presented that converts the unconditional distribution of netting-set-level exposure generated by an arbitrary Monte Carlo simulation process to an exposure at default (EAD) measure that consistently incorporates general WWR under the ASRF framework. Andrew G (2012). [RKN: 45695] Journal of Risk Management in Financial Institutions (2012) 5(2) : 181-193. CVA the wrong way. institutions will enjoy higher stock prices. May 2012. the author explores the relationship between value and the pursuit of values with a specific focus on the role that resiliency plays in our ability to be successful in creating value. The paper contends that the new model promotes greater risk disclosure. The credit valuation adjustment (CVA) has become an integral part of accounting rules and Basel III. and building protection against counterparty default through higher capital and margining requirements. Three possible solutions are proposed to mitigate such risks in the future: improved network visibility to understand credit chains. Bugalla. This research presents an exploratory analysis of risk knowledge transfer variables used in risk management practice. WWR can have a significant impact on CVA. Previous work has established that there is a difference between the influence of KM variables on risk control and on the perceived value of ERM. Henry Stewart Publications. The methodology effectively leverages existing ‘pre-computed’ exposures into a joint market and credit risk portfolio model. possible mitigants are suggested to the principal systemic risks posed by central clearing. margin levels are risk based. Henry Stewart Publications. To overcome this the fact is leveraged that. Daniel (2012). David (2012). In this paper the aim is to quantify the risk a financial institution has when facing a CCP. OTC central counterparty clearing : Myths and reality. [RKN: 45714] Journal of Risk Management in Financial Institutions (2012) 5(3) : 319-334. security and confidentiality purposes. This paper suggests that the regulatory proposals may not remove systemic risk from over-the-counter (OTC) derivatives but rather shift it from banks to central counterparties (CCPs). for a typical CCP. Instead a more flexible approach can achieve an appropriate balance between reduced systemic financial risk and the compliance burden on firms. and the risks posed by the potential for a CCP failure. and make the OTC derivatives market safer. Krishna. ie the management of default in a systemic crisis. this paper studies both the solvency risks whereby a CCP might sustain sufficient losses to be unable to continue operations. especially in the USA and Europe. this suggestion would lower CDS spreads in distressed sovereigns. While the impact of WWR at the counterparty level can be very significant. Milne. This paper also suggests that a tax on the derivative liabilities of large banks would address the source of the problem (ie under-collateralisation). It is shown that a clearing member's CCP risk is given by a sum of exposures to each of the other clearing members. Grody. Arnsdorf. This paper reports on past and current efforts to develop a global identification system for such a purpose. Henry Stewart Publications. It argues: (i) that the costs are not so large as some commentary has suggested. Quantification of central counterparty risk. Dilip (2012). Reininger. [RKN: 45711] Journal of Risk Management in Financial Institutions (2012) 5(3) : 288-304. Manmohan (2012). It requires a combined analysis of the large counterparties in the global economy along with the interactions they have with each other. Singh. 45 .The approach is demonstrated through a practical example. In particular. Based on this analysis. Recent regulatory efforts. Data aggregation and counterparty identification : Considerations for systemic risk analysis. loss sharing collateral. Furthermore. neither risk triggers nor risk exposures can be observed nor can systemic threats be detected. Fallacy of moving the OTC derivatives market to CCPs : Comment. It has been accepted by regulators that the very first pillar of global financial reform is a standard for identifying the same financial market participant to each regulator in the same way. and finally (iv) that the ‘rule based’ approach to CCP clearing of OTC contracts required by Dodd–Frank has become diverted into an inappropriate focus on the precise requirements for mandatory clearing. In particular. Henry Stewart Publications. It discusses both the reductions in exposure brought about by the introduction of central counterparties (CCPs) as buffers between derivatives counterparties. The authors argue for a government/industry partnership in which governance is shared and operating elements of the global identification system are compartmentalised for control. Alistair (2012). It is understood that without an ability to view the underlying positions and cash flows. We also show that. another taxpayer bailout cannot be ruled out. at least provided that mandatory clearing is applied only to widely traded standardised contracts. The exposures are calculated by explicitly modelling the capital structure of a CCP as well as the loss distributions of the individual member portfolios. A clearing member of a central counterparty (CCP) is exposed to losses on their guarantee fund and initial margin contributions. the standardised charge in Basel III can be significant even when compared against very conservative internal models with WWR. A key aspect of the model is that wrong-way risk is explicitly taken into account. Murphy. Henry Stewart Publications. Henry Stewart Publications. Such losses can be incurred whenever the CCP has insufficient funds to unwind the portfolio of a defaulting clearing member. Getting agreement on a globally unique and standardised legal entity identifier (the LEI) is the first step. as a by-product. Peter J. [RKN: 45712] Journal of Risk Management in Financial Institutions (2012) 5(3) : 305-313. This paper discusses the costs and benefits of introducing central counterparty clearing (CCP) in ‘over-the-counter’ (OTC) derivative markets. such as business ownership hierarchical structures and contract and instrument identification. Hughes. large portfolios of derivatives. Furthermore. The paper demonstrates a proposed global identification system that satisfies all known elements of regulators' requirements for the LEI and also lays the foundation for accommodating other attributes. The availability of a comprehensive and quality dataset is important to systemic risk analysis. (iii) because these benefits are public goods some policy intervention is appropriate to encourage a suitable level of adoption of CCP clearing. This paper examines the changes to systemic risk made by the introduction of over the counter derivatives central clearing. Allan D. ie the fact that member defaults are more likely to occur in stressed market conditions. the portfolio loss tail as a Pareto distribution is parameterised and this is calibrated to the CCP defined probability of losses exceeding the posted initial margin levels. the effect of general WWR at the portfolio level may not be as strong for well balanced. and liquidity risks whereby the failure of a CCP or one of its members may be caused by an inability to meet claims. Systemic risk analysis is now a topic of considerable interest the world over. An important consideration in designing the model is the limited transparency with respect to the portfolio composition and collateral levels of individual clearing members. (ii) that the key economic benefits of having CCP clearing do not come from reduction of counterparty credit risk (firms are perfectly capable of doing this on their own) — it is instead improved oversight of market participants and the coordinated management of open positions following the failure of a systemically important financial institution. Matthias (2012). Legal and regulatory update : Global identification standards for counterparties and other financial market participants. This does not necessarily require the default of the CCP itself. Henry Stewart Publications. [RKN: 45713] Journal of Risk Management in Financial Institutions (2012) 5(3) : 314-318. as well as potential contagion between a member's default and the losses on his portfolio. This paper discusses the kinds of data potentially required for systemic risk analysis and provides insights into the desired components of a systemic risk information solution. are aimed at reducing moral hazard so that the next financial crisis is not bailed out by tax payers. This arises because of the implicit default insurance that each member has provided in the form of mutualised. [RKN: 45715] Journal of Risk Management in Financial Institutions (2012) 5(3) : 335-346. The systemic risks of OTC derivatives central clearing. [RKN: 45710] Journal of Risk Management in Financial Institutions (2012) 5(3) : 273-287. Financial regulators are focused on observing systemic risk across enormously complex interconnected global financial institutions. valued in standard ways and aggregated by counterparty through common identifiers. [RKN: 45850] Journal of Risk Management in Financial Institutions (2012) 5(4) : 432-446. is that they are the result of the failure of conventional policy to deliver the outcomes policymakers want. The process itself brings important benefits in structuring of loan data and quantifying the portfolio's risks. This article will present a framework for understanding and performing CRE stress testing in community banks that is gradative in practice and. and presents the results of researches on the basis of empirical data. Henry Stewart Publications. A comparison study shows that contrary to the existing Basel regulation the proposition presented here has the intended quality as a built-in incentive for choosing a reliable forecasting model. each tailored to the specific needs of the region in question. Apart from establishing the measure of discrimination quality. They hope that by the time QE draws to an end. The review's intent was to evaluate comprehensively the overall design of the market risk amendment of 2004 and the update of 2009 including an assessment of the risk-quantification techniques adopted within Basel's internal models-based and standardised approaches. Kiran J. Basel Committee's fundamental review of the trading book : A commentary. In July 2009. If the risk element is to be reduced. Grody. Given the nature and extent of the weaknesses reported in their paper. Evaluation of the Basel VaR-based market risk charge and proposals for a needed adjustment. [RKN: 46064] Journal of Risk Management in Financial Institutions (2013) 6(1) : 6-9. Lipponer. Frances. the markets. This analysis shows that in high risk situations the Basel II guidelines fail in the attempt to cushion against large losses by higher capital requirements. Henry Stewart Publications. Fernandes. community banks must understand the increasing risk inherent in their lending portfolio. Ulbrich. Therefore. Mortimer-Lee. Fricke. Peter J. At the same time. the wisdom of building on an evidently flawed regime in an incremental way is questionable. thereby increasing the sensitivity of the risk regime to accommodate extreme events or ‘tail risk’. Bessis.Maguire. Jens. Henry Stewart Publications. Editorial : FX : The clearing conundrum. they. Hughes. the role of the Eurosystem in tackling the current crisis should not be overstretched. Whether commercial real estate (CRE) stress testing is performed on an internal basis or by a vendor it remains an important tool in evaluating risk. In today's constantly evolving regulatory environment. The effects and risks of quantitative easing. [RKN: 45849] Journal of Risk Management in Financial Institutions (2012) 5(4) : 421-431. Is the build-up of TARGET2 balances a question of self-contained risk?. as the foundation on which capital adequacy should be determined and administered. But central banks around the world have taken risks with the future in a bid to avoid adverse consequences today or tomorrow. the authors suggest that more fundamental revisions should be considered with a view to reinstating accounting in place of financial modelling. Whether they can remains to be seen. goes beyond the standards adopted by regulators. [RKN: 45848] Journal of Risk Management in Financial Institutions (2012) 5(4) : 398-420. Jens. This paper focuses on methods enabling the assessment of discrimination quality. Quality measures of scoring models. Ralf (2012). The recent proposal of the Basel Committee on Banking Supervision may have the same weakness as the Basel II regulation because it is constructed in an analogous manner. 46 . the extraordinary monetary policy measures of the Eurosystem will have to be addressed and reversed as soon as possible. [RKN: 45847] Journal of Risk Management in Financial Institutions (2012) 5(4) : 390-397. Especially in a monetary union of sovereign member states it cannot be the task of an independent monetary policy to reallocate solvency risks among taxpayers across the currency area. Brian W (2012). As a consequence of the review. Henry Stewart Publications. Allan D. By including the expected shortfall as a further measure of risk this paper's concept yields a steeper increase of the penalty factor and as a consequence a stronger effect of risk underestimation on the capital requirement. Jones. The resulting document provides commentary on weaknesses identified in the prevailing Value-at-Risk (VaR) based capital adequacy regime. In this commentary on the BCBS's proposals. Siarka. Pawel (2012). Alexander (2012). though. [RKN: 45846] Journal of Risk Management in Financial Institutions (2012) 5(4) : 372-389. this paper refers to the issue of the assessment of the stability of results obtained by setting a confidence interval for the quality measure of the scoring model. One of the factors causing this problem is that the built-in positive incentive of the penalty factor resulting from the Basel backtesting is set too weak. Stress testing has been identified as the most effective method currently available for analysing concentrations in banking portfolios. Henry Stewart Publications. the Basel Committee on Banking Supervision (BCBS) issued revisions to the market risk framework. [RKN: 45845] Journal of Risk Management in Financial Institutions (2012) 5(4) : 356-358. the BCBS is proposing that VaR be replaced by the Expected Shortfall methodology. the BCBS initiated a fundamental review of the trading book. Joel (2012). Therefore. concluding that shortcomings resulted in materially undercapitalised trading book exposures prior to the crisis. Henry Stewart Publications. it is up to the member countries and not the central banks to resolve the crisis. Any risk for the Eurosystem ultimately arises from liquidity provision and not from the redistribution of pre-existing liquidity. in some respects. J Steven (2013). stress testing does not need to be overly complex or involved. this paper proposes a new procedure for market risk regulation and it demonstrates how this works with real time series. Henry Stewart Publications. This paper argues that imbalances in the TARGET2 payment system are a symptom of the current financial crisis and not subject to self-contained risk. Commercial real estate stress testing in community banks: The low stress kind. What they all have in common. One of the basic stages of constructing credit-scoring models is the assessment of their quality understood as the ability to separate reliable and unreliable borrower population. Paul (2012). Pauly. There are many risks associated with unconventional tools such as QE and a number of drawbacks. Quantitative easing (QE) comes in many forms. At the end of the day. the financial system and the wider economy will be able to manage those risks effectively. For community banks. Toms. something that might end up with the Basel framework becoming increasingly irrelevant. Lindo. For example. Risk management infrastructure as a living organism. Henry Stewart Publications. which provides the capital amount. This paper identifies misconceptions among bankers. intelligent. which enables the sorting of risk incidents. the former because it disguised insolvency. adaptive organism. the literature sample primarily addresses the individual system components and how they might be prevented from jeopardising the financial system versus a more forward looking view of what changes to the overall system might make it more resilient. Irish banks will continue to operate sub-optimally with severe consequences for the Irish economy. Just as the institution's health and longevity depend on the performance of these systems. [RKN: 46070] Journal of Risk Management in Financial Institutions (2013) 6(1) : 75-96. Issouf (2013).Why markets do not trust Basel II internal ratings-based approach : What can be done about it?. On the other hand. Henry Stewart Publications. adaptive organism as an analogy — the human anatomy. As a result of the misunderstanding and regulations. the 2008 guarantee offered by the Irish Government to Irish banks was flawed in practice in the case of Ireland and the decision to set up a ‘bad bank’ was deeply defective. This paper analyses these incidents in depth and suggests strategies for carrying out the supervisory guidelines proposed by the regulators. the further investors dig into the apparent inconsistencies in RWA calculations the less confident they become. Dominique. Yao Djifa. academic and industry stakeholders focused on supporting the development of a systemic risk discipline. 47 . the lack of consistency is now becoming more clear but there remains the risk that if the Irish Government and EU fail to tackle the fault lines. Hassani. especially if extreme losses are not taken into account. while those that have are facing outright rebellion from capital markets that no longer trust risk-weighted assets (RWAs). Lessons for the Irish government on Basel II and accounting failures. The Banking Committee on Banking Supervision recommended that operational risk should be quantified using the Basel matrix. A brief survey of published approaches to modelling systemic risk in the financial system adds depth to the automated content analysis and provides a small example of the ongoing debates. Henry Stewart Publications. Brady. This paper compares two sovereign default risk models: the contingent claims analysis method and the ordered probit econometric approach. and the latter containing extreme losses (this point implies problems of granularity as mentioned in the Basel II guidelines). That requires constructing loss distribution functions (LDFs). Gerald. the latter because it interfered with the dynamics of supply and demand. Soumare. [RKN: 46065] Journal of Risk Management in Financial Institutions (2013) 6(1) : 10-22. (2) The choice of the risk measure. The paper highlights that a lack of consideration or a poor appreciation of the dependence structure may lead to incorrect capital charges. Markeloff. muscular. accountants and government officials on the importance of operational risk (or more precisely regulatory risk) and its contribution to the 2007 banking crises. banks need to provide a univariate capital charge for each cell of the Basel matrix. Operational risk : A Basel II ++ step before Basel III. policy prescriptions or recommendations based on the existing literature may be too narrowly and institutionally focused to capture the broader requirements necessary for ensuring the sustainability of the financial system. Modelling sovereign default risk : Comparing models and capturing the impact of the business cycle. The paper concludes that the expected shortfall measure enables a better anticipation of large operational risk incidents. The fear is that the committee's instinct is to focus only on the former. cardiovascular. [RKN: 46068] Journal of Risk Management in Financial Institutions (2013) 6(1) : 54-66. [RKN: 46069] Journal of Risk Management in Financial Institutions (2013) 6(1) : 67-74. [RKN: 46067] Journal of Risk Management in Financial Institutions (2013) 6(1) : 37-53. using actual examples from the financial sector to highlight the preservative effects of robust risk management infrastructure elements as well as the catastrophic effects of flawed ones. The role of the EU along with the European Central Bank and their contribution to the financial breakdown are examined along with International Financial Reporting Standards (IFRS) and the Basel II and III rules. The cherished goal of a global level playing field has fallen by the wayside. This implies that there is a need for a cross-disciplinary group of regulatory. Intervention from the EU continues. Henry Stewart Publications. The Basel capital adequacy standard is in crisis. Richard (2013). Consequently. The default indicators obtained from the two models are correlated with sovereign credit default swap spreads and indicate that sovereign default risk is higher during economic recessions than during expansions. On the one hand. nervous and immune systems — all have their counterparts in the infrastructure of a high-functioning risk management system. skeleton. risk managers. Flynn. Henry Stewart Publications. which implies estimating a frequency and a severity distribution. they in turn depend on the soundness of their infrastructure. Where is the ‘system’ in systemic risk literature?. The articles as a whole do not take a systems view in their analyses and proposals. Faced with this. Butler. a financial institution depends on the performance of its critical systems. Cormac (2013). Attention is focused on Ireland where a number of initiatives such as a bank guarantee system and the setting of a National Asset Management Agency (NAMA) to buy troubled assets along with other schemes have failed to resolve the banking collapse that Ireland is still experiencing. Generous tax breaks and increased government spending also played their part. In addition to establishing this analogy. indicating the discipline lacks a useful paradigm. as follows. Steve (2013). identify and monitor systemic risk to the financial system. Guegan. The paper concludes that initiatives such as the IFRS along with flaws in the Basel II rules contributed to the crisis. the paper will translate the insights it provides to real-life contexts. Henry Stewart Publications. N'Sougan. Bertrand K (2013). it is argued the Basel Committee has two options — either try and ‘prove’ RWAs work or else dumb it down. Finally. This paper examines the essential elements of risk management infrastructure in a financial institution using another complex. of which risk management is one. An automated content analysis of a sample of 65 articles pertaining to the financial system that include the term ‘Systemic Risk’ in their title indicates that there is no consensus on how to define. Shaun M. creating an oversupply of cheap loans to certain sectors. While some of the debate on this topic is superficial and generates more heat than light. intelligent. [RKN: 46066] Journal of Risk Management in Financial Institutions (2013) 6(1) : 23-36. banks also need to provide a global capital charge corresponding to the whole matrix. It is shown that the choice of the theoretical distributions to build the LDFs has a tremendous impact on the capital charges. replaced by an over complicated regime that many of the world's most important banks have not adopted. Like any complex. The critical elements of the human anatomy — brain. the paper finds two crucial points that should be taken into account by regulators and risk managers: (1) The necessity of splitting information sets in two parts while adjusting the severity distribution: the first covering small and medium losses. [RKN: 46055] Journal of Risk Management in Financial Institutions (2013) 6(2) This paper traces the development of risk management practices at large financial services firms before. Tony (2013). developing methodologies. specifically tasked to focus on systemic risk. Mazzaferro. To address such risks. regulation failed to cope with the complexities of modern finance and paid insufficient attention to systemic risk. Rich. Henry Stewart Publications. The ‘multi-layered’ nature of the approach is no substitute for quality in each layer. [RKN: 46071] Journal of Risk Management in Financial Institutions (2013) 6(1) : 97-108.Roy. (ii) There needs to be macro-prudential oversight. (v) Supervisory authorities should be sufficiently vigorous and closely cooperating. Peter (2013). Risk management will have to broaden its scope to capture the build-up of system-wide risk that might endanger the viability of individual institutions. (iii) Rules must be in place that ensure consistent incentives so that the market's natural allocation and monitoring roles achieve their full potential. The final section looks forward. these practices need to be enhanced during times of crisis. These institutions will be subjected to higher capital requirement. a case could be made for a public sector approach to dealing with the risk of financial crises that builds on five principles: (i) All relevant information should be available to the supervisory authorities. The globalisation of insurance : a supervisory response. [RKN: 46051] Journal of Risk Management in Financial Institutions (2013) 6(2) : 129-136. Risk management through the lens of macroprudential policy. Similarly. Sam. Francesco. which in combination with other regulation will help prevent or mitigate future crises. This paper proposes a quantitative technique that could be easily applied by banks when their workout recoveries are long and uncertain. Brinkhoff. The Development Phase of ComFrame will end in 2013 with the Field Testing Phase beginning in 2014 and the IAIS aims to adopt ComFrame in 2018. One important dimension of regulatory reform is the creation of macroprudential authorities. Hartmut (2013). Work is ongoing to develop fully fledged macroprudential policies. secondly. Yoshihiro. While adequate for ‘normal’ times. Daniel M. policies and frameworks from scratch. considering the lessons learned over the last years. Regulators worldwide are now addressing these deficiencies. John (2013). Henry Stewart Publications. neglecting systemic risk. [RKN: 46052] Journal of Risk Management in Financial Institutions (2013) 6(2) : 137-150. Ed. Windsor. This paper describes three insights into the use of risk-measurement models that further enhance the risk-management processes at Westpac: (1) Optimisation opportunities apparently on offer from advanced Basel II models led to the formalisation of a robust challenge process for risk models and the recognition that risk-model outcomes are best thought of as hypotheses that 48 . Wilson. Principles for dealing with financial stability risks. Recoveries done by banks on assets not traded in the market. Henry Stewart Publications. the paper explores the properties of the proposed discount factor and results from retail and corporate exposures of defaulted loans. Henry Stewart Publications. such as the European Systemic Risk Board (ESRB). It begins by outlining how enterprise risk management provides the foundation for crisis management. Salleo. A key determinant of the loss given default within the Basel II framework is the discount factor used in discounting the recoveries. Langfield. Risk management lessons learned from the financial crisis : one CRO's view. improving scenario and impact analysis and. asking critically how risk management and especially risk culture need to be developed in anticipation of future crises. [RKN: 46053] Journal of Risk Management in Financial Institutions (2013) 6(2) : 151-159. Olaf (2013). Supervisory challenges in the presence of systemic risk: The IAIS response to the current financial crisis. Jeroen. while ensuring that the specifics of both the insurance business model and the insurance balance sheet were properly reflected. achieving higher management impact through direct and contingent actions. intensified supervisory scrutiny and pre-defined resolution regimes. Before the beginning of the crisis in 2007–8. Maroney. during and after the financial crisis of 2008 and the 2012 European sovereign debt crisis. On top of the agenda is the identification of those institutions whose failure could cause systemic cascade effects with adverse impacts for the whole financial system and the real economy. especially when the workout period is long and uncertain. Henry Stewart Publications. Subarna (2013). have been relatively unexplored with respect to a suitable quantitative discounting technique. Henry Stewart Publications. Carmello. the paper discusses improvements in two specific areas: first. Financial crises and their associated risks pose a major challenge to governments. policy measures. [RKN: 46050] Journal of Risk Management in Financial Institutions (2013) 6(2) : 120-128. In the second section. Further. (iv) The financial system should be sufficiently resilient. The current financial crisis has called for a reassessment of financial sector supervision. risk managers in financial institutions tended to focus on risks in their financial institutions. The ComFrame project will have implications for the risk management functions within IAIGs as it will provide international standards for risk management within IAIGs and an expectation of enhanced interaction between supervisors and CROs and others within group-wide risk management functions. in particular to Ministries of Finance. [RKN: 46054] Journal of Risk Management in Financial Institutions (2013) 6(2) : 160-166. The IAIS as the global standard setter for insurance supervision has taken up these challenges and responded swiftly and comprehensively. International insurance groups are significant participants in the global insurance markets and are increasing in importance. The association developed the theoretical foundations to assess insurers in the context of financial stability. It also explores the impact of systematic factors in deriving the discount factor. Weeken. Bosworth. Kawai. The challenges must also be taken up by financial firms. action is often characterised by critical international or European processes. the methodology to identify systemically important insurers with global reach. However. In all areas the IAIS navigated in uncharted waters. From optimisation to resilience : the changing nature of the risk reward conversation as seen through Westpac's capital and liquidity management policies. which form a large share of their retail exposures. the ESRB has issued recommendations that will influence the behaviour of financial institutions. In dealing with these risks. Discounting long and uncertain workout recoveries for estimating loss given default. Hofmann. Thomas C (2013). It has launched the ComFrame Project in order to put in place a framework for effective supervision of IAIGs. The IAIS is the international standard setter for insurance supervision. Henry Stewart Publications. Koschyk. There is no agreement among practitioners and regulators on an appropriate discount factor selection methodology — quantitative techniques in this area have mostly focused on recoveries on assets traded in the market. Insurance supervision is more complex in the context of internationally active insurance groups (IAIGs). leveraging quantitative and qualitative tools such as top risk assessment (TRA) and own risk and solvency assessment (ORSA). to appropriately deal with insurers deemed to be systemically relevant and a framework for macroprudential policy and surveillance. ie highest importance is assigned to ensuring quality in each layer. As the effects of the financial crisis continue to unfold. In this paper the evidence associated with RWA consistency will be examined. Henry Stewart Publications. but also governments and economies. the financial industry. Risk aggregation is a challenge because it requires an aggregated view of various levels of reporting risks. Skoglund. Solutions to narrow the differences among banks have been proposed. a long journey for sure. Particularly. 49 . Coping with inconsistencies in bank risk weighted assets. The journey toward risk adjusting the financial system has begun in earnest. new approaches and solutions are required to restore confidence to markets and ensure an effective long-term response. such as leverage ratios. Industry participants. governments and civil society — organised numerous initiatives aimed at dealing with the sources and implications of the crisis. The crisis has demonstrated that efforts limited to specific institutions or jurisdictions are insufficient to address a problem that is global in scope. Henry Stewart Publications. When completed. An accurate estimation of the total risk is necessary to control and manage the risk. Given the global nature of the financial and economic turmoil. the World Economic Forum has — through its unique multistakeholder platform of engaging businesses. To determine the total enterprise risk for a financial institution. (2) The recognition that stress testing would not capture ‘unknown unknowns’ strengthened consideration of unquantifiable risks. and the global identification coding system for financial market participants and their traded products. risk adjusting the culture of global finance. The World Economic Forum : a multistakeholder platform for engaging the financial services industry and its role during the global economic crisis. These issues have created misgivings as to whether capital adequacy measures constructed by advanced internal rating based (AIRB) banks create level-playing field problems and whether they can be relied upon. Koenitzer. new collateral and margin schemes. as well as how to mitigate the risk of a recurrence of the failures of the past. ranging from imposing floors on certain parameters and calculations all the way to reverting to non-risk differentiated measures. [RKN: 46057] Journal of Risk Management in Financial Institutions (2013) 6(2) : 181-184. The pieces are being put in place: more resilient capital adequacy standards. Jimmy. Henry Stewart Publications. The risks of moving away from risk-sensitive regulatory capital will be described and recommendations for coping with these inconsistencies will be made. all risks must be aggregated. are still struggling with its consequences. investors. Henry Stewart Publications. Chen. . Allan D (2013). Risk adjusting the culture of global finance. [RKN: 71361] Journal of Risk Management in Financial Institutions (2013) 6 (3) : 219-228. industry structures and financial institutions. Erdman. savers and pensioners. Donald. Risk aggregation is the roll-up of low-level risks or sub-risks to higher levels. the world faces serious challenges to capital markets and the global economy. That is certainly the most difficult of all as it effects people's attitudes and behaviour within newly evolving financial regulations. and also the aggregated risk of these individual risks. A mixed approach to risk aggregation using hierarchical copulas. with differences in metrics and differences in data sources. Grody. Further. more appropriate risk measurement techniques. [RKN: 46056] Journal of Risk Management in Financial Institutions (2013) 6(2) : 178-180. Indeed. there will be a final piece left to do. and insurers. which are more easily understood. the experience from the global financial crisis that continual access to wholesale funding markets could not be assumed deepened the understanding of the role risk models play in maintaining market confidence.should be continually tested. That is. and its ends with a generational transfer of core principles from the seasoned to the young. allowing a mixed approach to specify copula dependence between individual risks allows that risk dependence to be specified step by step. The aim of all these initiatives is to address the following question: What can the financial services industry do to better monitor. It starts with hiring the ‘right’ people and then the way they are trained. Carin (2013). [RKN: 46059] Journal of Risk Management in Financial Institutions (2013) 6(2) : 188-205. As aggregate demand falls. there is still a significant risk of a global recession that will affect many sectors. Since the beginning of the crisis in 2008. Wei (2013).10 pages. Michael (2013). credit risk and operational risks. This paper highlights the lessons learned from the financial crisis from an insurance industry's perspective and elaborates its implication for risk management to cope with the challenges ahead. the ongoing ultra-low yield environment presents some challenges for companies. [RKN: 46058] Journal of Risk Management in Financial Institutions (2013) 6(2) : 185-187. Huber. Risk management in a low-yield environment : consequences of the financial crisis. It is especially complex to aggregate risk when the joint dependence between all the individual risks has to be specified. It is well known that the copula approach provides a way of isolating the marginal behaviour of individual risks from the description of their dependence structure. decomposed in partial sums. Each of these insights tilted the emphasis in discussions at Westpac about enhanced risk measurement from optimisation to resilience. Henry Stewart Publications. Mixed copula aggregation does not fully specify the joint distribution but rather provides the minimum amount of information to determine the aggregate risk. regulators and investors have raised concerns with the consistency of Basel risk-weighted asset (RWA) assessments across banks that are critical to the determination of capital ratios. Risk management for banks or insurance institutions involves risk measurement and risk control at the individual risk level. etc. Axel P. a common view of the dependence between all individual risks may not be available. Michel (2013). it proceeds with the mentoring they receive and the habits they are taught within a tempered view of performance and risk. manage and maintain the resilience of the financial system? Lehmann. It has also highlighted the need to improve risk management strategies at both the system-wide and institutional levels in the financial services industry. While the climax of the financial crisis is already five years ago. Some of the underlying reasons and sources of inconsistency will be evaluated along with the solutions proposed. (3) Finally. Araten. This approach allows users to specify different dependence characteristics as is needed and the model complexity can be adjusted to the complexity required by the aggregation. central counterparties for over-the-counter (OTC) derivatives. including market risk. [RKN: 71382] Journal of Risk Management in Financial Institutions (2014) 7 (1) : 16-25. Mark. Bookstaber. The financial crisis of the late 2000s underscored the importance of identifying systemically significant institutions and developing mechanisms to internalise the externalities they create on the economy should they fail. Jill. . When firms grow with superior products and services. Sheen. [RKN: 71373] Journal of Risk Management in Financial Institutions (2013) 6 (4) : 352-365. Brandon (2013). Results suggest that even though systemic risk is currently not a major concern in the Colombian banking system.11 pages. Continuous monitoring of the joint expected losses given default should assist in anticipating future stress scenarios and. as such. Stress tests to promote financial stability: Assessing progress and looking to the future. as such a strategy often involves committing all of the firm's resources to achieve growth targets. Unlike Jack. Under the new so-called Ringfencing Act (Trennbankengesetz). the joint distribution of such expected losses is estimated and the aggregate cost of the implicit bailout option for the government is quantified. Using monthly data for the period between September 2001 and March 2011. which will take effect as of January 2014. Henry Stewart Publications. Subsequently. This paper surveys the status quo of operational risk management in German insurance companies with respect to strategies followed. the results may be useful to risk managers as a point of reference when assessing the adequacy of their own company's risk management strategies. quantifying these risks helps to enhance the supervisory and regulatory framework. Quintero. Greg. Andrew (2013). Henry Stewart Publications. instruments and processes. Romano. The paper also looks at a number of risk issues that pose challenges to bank boards with implications both for board composition and for the structure and remit of board committees. Operational risk: Back on the agenda. executives. Esteban Gómez. should be adapted to support financial stability monitoring and to incorporate the interconnections and dynamics of the financial system. This paper provides a description of the risk management duties and the corresponding criminal penalties.27 pages. Richter. bedazzled by a type of ‘beanstalk syndrome’. Feldberg. . [RKN: 71377] Journal of Risk Management in Financial Institutions (2013) 6 (4) : 433-443. suppliers and the general economy benefit. Peter. this paper argues. Patrick (2013). McCormack. Failure to comply with these duties will be punishable by a maximum of five years’ imprisonment if it causes a threat to the viability as a going concern of a bank. then directors. Pfeifer. Both near-term and longer-term objectives are discussed. like the mythical Jack. riches can follow but. or the proactive management of the risks to corporate strategies. Since the 2008 financial crisis. This paper looks at several examples of large financial institutions that adopted some form of aggressive growth strategy only to have it blow up when the global financial crisis (GFC) hit. customers.11 pages. which has its roots in risk management.21 pages. 50 . Rick. . Paul (2014). Thomas (2013). or insolvency or over-indebtedness of an insurance company.10 pages. shareholders. bank-specific probabilities of default and expected losses given default are calculated. if not. Flood. however. [RKN: 71369] Journal of Risk Management in Financial Institutions (2013) 6 (3) : 253-279.14 pages. González. the outcome can be catastrophic. Stress testing. How do you deal with operational risk? A survey of risk management practices in the German insurance sector. Their boards and management were. All of the banks considered in this paper. The paper concludes that a far greater degree of integration and coherence between the different reports is required to help the board execute its strategic responsibilities to shareholders and governance responsibilities to both shareholders and regulators. [RKN: 71378] Journal of Risk Management in Financial Institutions (2013) 6 (4) : 444-454. specific duties and responsibilities for risk management will be imposed on these executives. bank supervisors have honed their financial stability monitoring tools and significantly expanded the use of stress testing in the supervision of the largest financial institutions. Mosquera. Henry Stewart Publications. . The findings contribute to current discussions regarding the national implementation and interpretation of the European Solvency II directive by highlighting similarities and differences in dealing with operational risk within the German insurance sector. This paper looks at the reporting that goes to the board and to regulators to inform them of the financial performance.McConnell. constitutes a powerful macroprudential tool for policymakers. Strategic risk: the beanstalk syndrome. the beanstalk came crashing down. Henry Stewart Publications. Dietmar (2013). It also discusses the regulatory background and provides an initial assessment of the likely implications for risk management at German financial institutions. Jörg. . Laura Capera. Glasserman. If such a strategy succeeds. Measuring systemic risk in the Colombian financial system: a systemic contingent claims approach. Henry Stewart Publications. staff. Growth can be good — but can also be dangerous. The German parliament recently approved a new law regarding individual criminal liability of banking and insurance executives. The new German law establishing criminal liability of banking and insurance executives for failures in risk management. Prudence was abandoned as each firm discovered a ‘golden goose’ that could seemingly produce profits forever.22 pages. . but delivering on a ‘growth strategy’ is notoriously difficult. [RKN: 71371] Journal of Risk Management in Financial Institutions (2013) 6 (3) : 229-252. Davies. had adopted strategies that were built on significantly growing their balance sheets but they failed to manage the risks inherent in these strategies. [RKN: 71375] Journal of Risk Management in Financial Institutions (2013) 6 (4) : 366-386. where they believed they could. This paper focuses on the role of operational risk in developing an effective enterprise wide risk management framework. In particular. Mariana Laverde. Henry Stewart Publications. Henry Stewart Publications. Prokop. it provides insights into incumbent risk managers' views on current and future regulation of the risk management process. in the author's opinion. and in ensuring that the firm develops an effective risk culture that supports the business. This paper describes areas in which further research could contribute to the development of best practices in stress testing and how stress tests can be made more useful for macroprudential supervision. How do boards address risk management and oversight?. in particular the need to manage their leverage and their liquidity. balance sheet and risk profile of a bank. killing not the giant but the bank itself. Cetina. . plant some ‘magic beans’ that would somehow grow into a constant supply of profits. This paper argues that these cases illustrate a lack of proper strategic risk management (SRM). It further argues that regulators have a responsibility to ensure that boards of systemically important banks (SIBs) that adopt risky strategies. processes implemented and instruments used. put in place the necessary risk management policies to ensure that taxpayers do not have to bail the companies out if/when the strategies fail. Moreover. Miguel Ángel Morales (2013). Since the global financial crisis. Hopper. Greg (2014). Liliana (2014). the editors asked a number of respected figures in the wider risk management community to provide their insights on the topic. Smillie. by their nature. pre-crisis stress tests yielded largely benign results. David. it discusses the integration and coherence of the macroeconomic.8 pages. building on the lessons from the crisis. In particular. knowledge of the key individual financial institutions in the system. The application of Behavioural Finance to Risk Management is still in its infancy and few models have evolved as to how to apply the theories and research findings to practical day-to-day risk management problems.4 pages. Macrofinancial stress testing: Incorporating systemic risk perspectives into a stress testing framework. The authors discuss the need for a holistic approach to measuring risk tolerance that provides a consistent framework for constructing efficient multi-asset allocation and ensuring a suitable aggregate level of risk and return. while stress value at risk (VaR) has been introduced to the regulatory framework for market risk capital. and (2) In the light of 51 . and it also suggests how models can be used to calibrate and formulate stress tests that include the mitigating effects of dynamic hedging. . such as VaR. Eduardo (2014). Riedel. The method is based on existing components of firms' risk management systems. credit. In this article. the stress testing framework should be improved. goal-based. David M (2014). counterparty and operational risk scenarios. four case studies are discussed in which it is illustrated how to use risk management models in the formulation of stress tests. Irina. counterparty and operational risks: the explicit consideration of the hedging and liquidity dynamics of trading portfolios. This paper presents and updates a paper which was delivered at the 1982 annual convention of the (US) National Association of Business Economists. Sobehart. The test should be designed appropriately. Henry Stewart Publications. their business models and main channels of risk transmission. using a credit valuation adjustment model as an example. An understanding of an investor's risk tolerance is essential to determining investment suitability and yet there is no universally agreed definition of what risk tolerance is. which called into question the effectiveness of stress testing for detecting financial system-wide risks. which can be measured effectively using holistic psychometric scales. This paper offers thoughts and ideas on the implementation of a company-specific stress test programme and focuses on the design of the stress test scenarios. simulation of dynamic hedging costs of credit valuation adjustments (CVAs) and the averaging across different models to mitigate misspecification error and obtain more reliable estimates of stressed operational losses. tail correlations) missed by a simple model-based approach. [RKN: 71379] Journal of Risk Management in Financial Institutions (2014) 7 (1) : 85-92. The emphasis throughout is on the use of practical techniques that employ risk management models already in use. assessments of risk tolerance is misguided and exposes institutions to risks associated with providing unsuitable advice. sometimes these risk management models can be used to generate more empirically relevant stress tests. Risk tolerance: Essential. Brooks.7 pages. The performance of the proposed model is examined during two market crises and it is shown that it outperforms both a purely statistical model and a purely stress test-based approach. [RKN: 71381] Journal of Risk Management in Financial Institutions (2014) 7 (1) : 52-61. . are somewhat ad hoc and difficult to integrate with statistical measures of risk. Henry Stewart Publications. and which transpired to be particularly prescient. The art and science of stress testing. Henry Stewart Publications. The role of models in economics and risk management. Triyog (2014). they accentuate. there will be limitations. Rowe. . making it easy to implement. stress testing has received renewed attention. Ursachi. Greg B. Perspectives on risk management and behavioural finance. Henry Stewart Publications. Stress testing is increasingly being used to complement model-based estimates of risk. An epilogue has been added to the original paper. stress testing now has enhanced roles for crisis management and financial sector oversight. Frank (2014). Stress test design. and right decision on the test's perimeter and coverage. market. Peter (2014). Henry Stewart Publications. [RKN: 71311] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 110-113. . However. Henry Stewart Publications. Henry Stewart Publications. Eduardo. Risk tolerance is only stable when considered as a personality trait. [RKN: 71308] Journal of Risk Management in Financial Institutions (2014) 7 (1) : 62-71. In addition to commissioning the papers in this issue. namely systemic risks. On the other hand. In particular four thought-leaders were asked for their perspectives on two specific questions: (1) Should banks and regulators include the findings of psychological/behavioural research in their risk management frameworks. J R. automated reverse stress testing for identification of market risk vulnerabilities. On one hand. given the investor's personality and financial circumstances. Stress tests. Alan. regardless of refinements and improvements. . [RKN: 71309] Journal of Risk Management in Financial Institutions (2014) 7 (1) : 26-37. the very topic of this Special Issue — Is there a role for Behavioural Finance in Risk Management? — is still a moot question. Attempts to measure risk tolerance at lower levels of granularity are unstable. including a clear understanding of the scope and objectives. rather than mitigate short-term behavioural distortions and cannot be meaningfully aggregated to provide an overall level of risk that is appropriate given the investor's risk capacity. Although stress tests are intended to complement the use of risk management models such as value at risk (VaR) and potential exposure models. yet still exhibits many of the features (fat tails. This article proposes best practice principles for such a framework. Canabarro. behavioural and misunderstood. Epperlein. This implies that the recent move towards mental accounting. [RKN: 71315] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 103-109. Davies. . .10 pages. One should therefore always be cautious about using test results in isolation: a well-rounded risk assessment should use stress tests with other tools to broaden the understanding of vulnerabilities. Hillson. incorporating systemic risk perspectives. In fact. These examples also illustrate how risk management models may be used to formulate stress tests as well as quantify the largest risks inherent in a firm's portfolio.Oura. All the above is framed within the context of the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) programme. This paper describes a method to combine in a consistent way stress losses with the output of the VaR model.8 pages.12 pages. Certain specific features are recommended to enhance the stress test of market. Schumacher. Use of stress scenarios in market risk economic capital. In order to better shoulder these new roles.10 pages. The paper discusses how models might be used to calibrate a stress test of a financial variable when there is very little empirical evidence on how the variable has behaved historically. in which the author gives a contemporary perspective. and concludes that risk models can be extremely useful in the practice of risk management. Pandya. Hiroko. [RKN: 71317] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 114-121. in order to build an economic capital model for market risk. . Sobehart. [RKN: 71312] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 145-152. Hansjörg. Henry Stewart Publications. Based on the conceptual distinction between risky and uncertain environments this paper presents theoretical and empirical evidence that boundedly rational agents prefer simple heuristics over more flexible models. in some cases. Lucey. Rumour has it: Modelling credibility. The Irish context provides a pertinent case study of what can happen when hubris and associated behavioural biases take control of a bank's risk management strategy. we advocate the alternative notion of Homo heuristicus. had no spur to update their models to keep up with the changes. [RKN: 71321] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 134-144. [RKN: 71314] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 153-160. Behavioural biases. Meder. Unfortunately. From hubris to nemesis: Irish banks. Homo Heuristicus in the financial world: From risk management to managing uncertainty. As a consequence the principles paper over rather than resolve core ethical deficiencies exposed in a still metastasising scandal. is more likely to embed ethical decision-making. which can break models. The paper examines how and why the IOSCO process has privileged symbolism over substance. as measured by indicators such as changing market share. Michael. people can have a variety of degrees of trust in the information they receive. Originators and securitisers reacted with a variety of new strategies: creating new mortgage types like no-documentation loans. Van Deventer. Lax risk management. risk managers could anticipate model failure by monitoring competitive pressure in the relevant markets. We conclude that all members of the financial community will benefit from simpler and more transparent products and regulations. can thwart the best-intended regulations and block their effectiveness. Gigerenzer. has its roots firmly in the banking sector. This paper describes some of their results and illustrate how they regularly impact risk management. both on the part of the regulators and the regulated. The alacrity with which IOSCO has moved and its endorsement by the Group of 20 Finance Ministers and Central Bank Governors (G20) is notable. . such as during the financial crisis of the late-2000s. Brian M (2014). What — if anything — can psychology and decision science contribute to risk management in financial institutions? The turmoils of recent economic crises undermine the assumptions of classical economic models and threaten to dethrone Homo oeconomicus. Justin (2014).12 pages. is now viewed as one of the primary causes of the over-lending during the ‘Celtic Tiger’ years that fuelled the excessive growth in credit and subsequent banking implosion. reduce the risk of institutional corruption and achieve socially beneficial outcomes. Whitmore. Behavioural research has demonstrated the powerful effect of competition on people's strategies. Amit. Jorge R (2014). [RKN: 71319] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 174-191. reputation and franchise risk. The Monetary Authority of Singapore (MAS) has developed an innovative solution whereby contributing banks to the Singapore Interbank Offered Rate (Sibor) are mandated to privilege the integrity of the benchmark over individual institutional reputational or litigation risk. credit rating agencies. Market models that have worked well for years can suddenly fail dramatically.new UK legislation. 52 . O’Brien. But rather than proposing to replace the rational actor model with some notion of biased. models that assigned credit ratings to mortgage-backed securities (MBS) predicted relative default rates well for decades. economic and cultural dimensions of specific markets.11 pages. Björn. but it can take a single adverse event to destroy a firm's reputation and franchise value completely and put the institution out of business. Neth. Anticipating market model failure: Competitive pressure and the mortgage backed securities market. . . Singapore Sling: How coercion may cure the hangover in financial benchmark governance. behavioural biases and the financial crisis. Henry Stewart Publications. This regulatory re-engineering of risk management integrates rules. which affects the probability they assign to uncertain events and how they perceive credibility and reputation.8 pages. Donald R. committing fraud. Thus. eventually resulting in all Irish banks ending in state ownership. and illustrate these insights with a fast and frugal decision tree that helps to identify fragile banks. as in any other aspects of life. Dowling. Kahneman and Tversky's work has shown how individuals use heuristics when they face the difficult challenge of coming up with probabilistic judgments. explain when and why heuristics work well. The impact of heuristics on the practice of risk management: The example of default probabilities. For example. but as David Hillson notes the question is not whether behaviour should be considered in risk management ‘but how?’ Hopefully the perceptive answers will trigger debate among risk management professionals as to how the theories can be applied.1 should ‘reckless’ behaviour be regulated? The responses of these experts are enlightening. but ecologically rational strategies to make sound and robust decisions. This derives from diametrically conflicting views within IOSCO as to whether benchmarks based on hypothetical submissions can be reformed or must be replaced by systems anchored in observed transactions. it was in the mid-2000s that competitive pressure spiked among mortgage originators and securitisers. Jean Czerlinski (2014). The causes of the Irish banking sector collapse are approached from a behavioural perspective of the role of Boards of Directors in bank risk management and then proceed to explore the likely presence of behavioural biases among senior executives in Irish banks. . It was only in the late-2000s that these models under-predicted defaults by orders of magnitude. The collapse of the Irish economy. Why then? This paper argues that high competitive pressure spurs market participants to change strategies. who uses simple. [RKN: 71320] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 122-133.13 pages. who aims to make decisions by weighing and integrating all available information. Henry Stewart Publications. improving the efficiency of back office processing of mortgages. The paper concludes that this holistic approach. secure in their dominant market positions. It then evaluates an alternative approach.18 pages. fundamentally flawed and irrational agents.8 pages. We provide examples of successful heuristics. The International Organization of Securities Commissions (IOSCO) has formalised a set of principles designed to restore confidence in a range of systemically important financial benchmarks. whether the principles provide a basis for sustainable reform. aided by poor board oversight and behavioural biases among senior executives. . Here the authors focus primarily on credibility using a probabilistic behavioural approach that quantifies investors’ and customers’ trust in a given firm. It is far from clear. Kothiyal. once calibrated to the political. In financial matters. Indeed. Henry Stewart Publications. reducing quality control and. For most institutions it takes years to acquire a good reputation and recognition. still ongoing after 5 years. [RKN: 71313] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 161-173. Henry Stewart Publications. Tom (2014). Henry Stewart Publications. Gerd (2014). Zimmerman. however. principles and social norms to forge restraint. 366–386) and illustrates issues to be considered when progressing from the standardised approach to the advanced measurement approach. the UK parliamentary inquiry into banking standards recommended that a new criminal offence be created to cover reckless behaviour by senior bankers. McConnell. This paper examines the systemic risk consequence of this concentration and makes certain recommendations for its mitigation. The article comes to the conclusion that the social as well as the physical environment can diminish the human propensity to commit a fraud. 53 . Henry Stewart Publications.20 pages. Reckless endangerment: The failure of HBOS. Georg (2014). Huaxing (2014). [RKN: 71327] Journal of Risk Management in Financial Institutions (2014) 7 (3) : 226-230. Many financial institutions were still able to meet their capital requirements when they received government bailouts. Henry Stewart Publications. The paper considers how such reckless behaviour might be detected and managed before (rather than after) it leads to bank failure. there are some shortcomings in the legal and political construction chosen for the SSM. Umande. Vol. the EU is currently pursuing the most important project in terms of European integration since the introduction of the euro in 1999. While the risk-adjusted return on capital (RAROC) provides a valuable performance measurement metric and tail risk measures such as economic capital are useful inputs in this metric. The paper then discusses how this limit framework can be used in a dynamic fashion for risk-adjusted return optimisation. . 4. possibly reversing some of the desired positive effects. In its final report. it analyses whether behavioural designs can prevent future criminal offenses. The paper is a follow-up to a 2013 paper by McCormack and Sheen. Thomas (2014). the accident happened and HBOS collapsed under a mountain of debt.5 pages. loss data. Ozdemir. [RKN: 71325] Journal of Risk Management in Financial Institutions (2014) 7 (3) : 221-225. in particular considering the cognitive biases (such as over-confidence and groupthink) that may have led directors to underestimate the seriousness of the bank's situation. Sensitivity — particularly in earnings — to risk drivers can have devastating impacts on financial institutions at much lower confidence intervals than those used to calculate capital requirements. No. Philip (2014). one in 10. Managing operational risk: Moving towards the advanced measurement approach. The latter can be managed through an earnings-at-risk (EaR) framework and the former through an economic capital framework. In 2004. This paper introduces a dual risk metric framework to manage the tail of a loss distribution and addresses sensitivity to movements in market variables at lower confidence intervals. via scenario analysis. [RKN: 71316] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 192-201.14 pages. Xia. . Furthermore. pp. Bogie. . This paper looks at the failure of HBOS using a behavioural finance perspective. Evren. and. on the expected income. A financial institution needs to manage these near-term risks in addition to tail risk driving its capital needs. This dual measure framework is demonstrated for a monoline company and a multiline company. The traditional RAROC metric is extended to also accommodate the EaR appetite. misconduct was often made attractive to fraudsters by means of external rewards. The UK parliamentary inquiry into the HBOS collapse labelled the bank's strategy ‘incompetent and reckless’. Reforming performance incentives might therefore be an efficient measure to reduce deception in financial markets. Systemic risk in central counterparty clearing houses.10 pages.or 20-year loss events.18 pages. 6. Managing performance using a dual measure framework. This article explores the anatomy of three recent financial scandals and investigates how the legal system has responded to them. a supranational banking supervisory body embedded into the organisational structure of the European Central Bank. the risks that pose the biggest threat to a firm's ability to meet its strategic objectives.Hornuf. If implemented properly. . Sheen. . Dietz. This paper examines how to use these metrics simultaneously to allow a financial institution to set its risk appetite and effectively manage both moderate and extreme risk exposures. Andrew. The centrepiece of the banking union is the ‘Single Supervisory Mechanism’ (SSM). these extreme tail measures are not informative of the impact of more moderate. [RKN: 71318] Journal of Risk Management in Financial Institutions (2014) 7 (2) : 202-215. Henry Stewart Publications. This paper focuses on the management of operational risk using scenario analysis. One of the deficiencies highlighted by the recent financial crisis in value-at-risk (VaR) based capital requirements was a lack of focus on more near-term sensitivities to market shocks. Cubukgil. Moreover. Regulating fraud in financial markets: Can behavioural designs prevent future criminal offences?. Peter. strengthening the competitiveness of large complex European banking groups. Patrick (2014). Henry Stewart Publications. With the so-called banking union. Lars.5 pages. to reconciling control and liability with respect to cross-border banking supervision in the EU and to accomplishing the European internal market. However. Haas. McCormack. requiring the injection of some £20bn of taxpayers' support. Just four years later. Anonymous (2014). On the Single Supervisory Mechanism. [RKN: 71324] Journal of Risk Management in Financial Institutions (2014) 7 (3) : 239-256. [RKN: 71322] Journal of Risk Management in Financial Institutions (2014) 7 (3) : 257-276. Henry Stewart Publications. the banking union could contribute significantly to breaking the bank–sovereign nexus within the euro area. . business environment internal control factors and modelling approaches to get a better understanding of the firm's forward-looking risk profile. entitled ‘Operational risk: Back on the agenda’ (Journal of Risk Management in Financial Institutions. UK banking regulators reportedly told the Board of Halifax/Bank of Scotland (HBOS) that their chosen growth strategy was an ‘accident waiting to happen’. Market participants and other counterparties can quickly lose confidence in institutions that are still relatively well capitalised but whose earnings have been eroded by market loss events. The Dodd–Frank Wall Street Reform and Consumer Protection Act's requirement to centrally clear over-the-counter derivatives through the creation of central clearing counterparties (CCPs) is concentrating credit and market risk to an extent where CCPs are too big to fail. Henry Stewart Publications. The Board of Governors of the Federal Reserve proposed Regulation YY. Global interconnectedness can yield significant benefits. systemic risk creates vulnerabilities such that a single node in a network has the capacity to disrupt the entire global system. John. However. Additionally. Yu. [RKN: 73839] North American Actuarial Journal (2012) 16 (1) : 1-28. effective 21st July. Internet URL: http://www. property and casualty insurance industry. . the magnitude of certain IRM adjustments is substantial. Goldin. . Over the next three years a plan was set in motion to implement a number of modules in the new platform including risk and control self assessment (RCSA). The valuation model shows that increasing an insurer's surplus from an initially low level typically increases the present value of future cash flows that take into account the probability of impairment from extreme losses. further increases in surplus actually reduce a firm's value added measured in this fashion. Managing the invisible: identifying value-maximizing combinations of risk and capital.28 pages. As required by Dodd–Frank. [RKN: 71326] Journal of Risk Management in Financial Institutions (2014) 7 (3) : 287-298. Internal Audit recognised the need to utilise the company's new GRC software for its audit projects. The market responds negatively to ERM adoption. An opportunity to leverage a common governance. risk and compliance (GRC) approach across the institution arose in 2011 as KeyCorp began to leverage GRC software to implement the various risk related activities across the bank on a common platform. I show that knowing a firm's aggregate risk exposure (via ERM). Henry Stewart Publications. whether or not the firm is solvent. Dodd–Frank Section 165 requires. [RKN: 71332] Journal of Risk Management in Financial Institutions (2014) 7 (4) : 325-327. [RKN: 74014] North American Actuarial Journal (2013) 17 (1) : 13-28. In a globalised world. Sensitivity analyses presented here show how these conclusions are affected by changes in the values of crucial variables. when the collapse of a single financial institution had reverberating consequences across the world's financial system. Enterprise risk management: strategic antecedents. beyond a certain optimal level relative to a firm's risk. Responding to the significant deficiencies that were found in risk management practices at some larger financial institutions. With the recent (at the time of this writing) financial crisis and the continued focus on a strong risk management culture at KeyCorp. risk integration.openathens. Accounting for the interplay between ERM and various individual risk management (IRM) practices. the decision was made to re-evaluate the audit universe and risk assessments with an aim towards a common framework with the first and second lines of defence. Jifeng (2012). while Regulation YY provides for a sound structural foundation for the practice of risk management at financial institutions. the article shows how managers can use this model to identify specific actions that their firm can take to increase its value added. the regulation cannot prescribe the human interaction and constructive dialogue between the chief executive officer.S. This paper proposes that the financial crisis of 2008–2010 demonstrates the need for a robust enterprise-wide risk management programme at financial institutions. Internal audit’s role in the risk assessment process at KeyCorp. Kallman. findings and remediation tracking. can enable the firm's managers to identify and choose value-maximizing combinations of risk and capital. Such vulnerability was illustrated during the 2008 financial crisis. This was driven by the desire for timely and accurate reporting to management and risk committees. The Butterfly Defect: Why globalisation creates systemic risks and what to do about it. In particular.net/ 54 . . Henry Stewart Publications. We tested hypotheses with data from the U. This paper also proposes that. and it emphasizes the practical importance of making a firm's value both visible and manageable. among other requirements. Our results show that insurers with more reinsurance purchase and greater geographic diversification are more likely to adopt ERM. Ian (2014). and value creation of ERM. Using value maximization as the criterion for choosing a firm's capital structure is quite distinct from rules of thumb that CFOs often use for such decisions. chief financial officer and chief risk officer with the board of directors required to prevent future risk management failures. Kristina (2014).5 pages. that certain financial institutions create independent board-level risk committees and practise enterprise-wide risk management. Society of Actuaries.12 pages. but can also create new systemic risks. operational losses and others. The current literature on the adoption of enterprise risk management (ERM) abstracts from the issue of its strategic context. as well as the Board of Directors. A variety of risk assessment tools existed that spanned business units and risk disciplines. 16 pages. independent risk management (second line of defence) and internal audit (third line of defence) utilise a common risk framework has been paramount. ERM displays a strong negative correlation with firm value with a discount of 5% (4%) in terms of Tobin’s Q (ROA) Internet URL: http://www. workpapers. [RKN: 71333] Journal of Risk Management in Financial Institutions (2014) 7 (4) : 370-374. Yijia. risk integration and performance. risk profiles. 2010 by the 111th US Congress.net Panning. Six policy steps are proposed to address systemic risk inherent in an interconnected world. Trudell.openathens. KeyCorp recognised the need for risk convergence and a consistent approach to risk assessment. Society of Actuaries. which brings greater clarity and detail to Section 165. From an internal audit perspective. After ERM initiation. William H (2013). This article demonstrates the linkage—often asserted but seldom described—between Enterprise Risk Management (ERM) and maximizing a firm's value. impairment here is taken to mean a loss of creditworthiness such that the firm's business model is no longer sustainable. Min-Ming. The paper concludes by proposing possible solutions to this governance issue. James. However. In contrast to traditional literature on the risk of ruin. the ‘Dodd–Frank Wall Street Reform and Consumer Protection Act’ (Dodd–Frank) was enacted. the need to ensure that the lines of business (first line of defence). Narvaez. NORTH AMERICAN ACTUARIAL JOURNAL Lin. Christian (2014). This presented an array of opportunities and challenges. this paper presents a theoretical basis to study the strategic determinants. when combined with a valuation model like the one presented here.Bugalla. Henry Stewart Publications.3 pages. risk assessments and findings documentation to further serve these efforts and the journey towards risk convergence officially began. Wen. . Chief risk officers: The high wire act in the financial sector. net/) Nielson. or time-limited job accommodations. Weather derivative risk measures for extreme events. Nyce.01201.doi. Pierre (2012).org/10. DOI: http://dx. Disability risk management and post-injury employment of workers with back pain. and that the methods discussed can compute standard actuarial risk measures in both a frequentist and Bayesian setting.2011.1540-6296.15 pages. . Bill.org/10.839377 (access via Athens login http://www. we use two approaches: The first is based on the composite likelihood. DOI: http://dx. Norma L.openathens.org/10. Central to this structure is the firm's Risk Executive Committee. We explain how these rival perspectives are evident on all levels. The central challenge is to model the dependence of payments.1540-6296. Richard L (2014). we propose a new theory of optimal risk sharing that finds its inspiration in the economic theory of the firm. Tabletop disaster exercise to enhance risk management education.1111/j. Plural Rationality Theory highlights four competing views of risk with corresponding strategies applied in four distinct risk environments. Examining the global reinsurance market. medical management.01207.openathens. To incorporate parameter uncertainty into the pricing model. assesses their impact on the firm's overall risk profile. [RKN: 73819] Risk Management and Insurance Review (2012) 15 (1) : 23-34.1080/10920277. Niehaus. which began to be used as a tool for understanding risk 40 years ago in the field of social anthropology. claims management. We show that the additional risk from the spatial dependence of payments can be quite substantial. which includes the senior leadership of the firm and the Enterprise Risk Oversight staff. Traditional “risk management” is shown to align with only one of these four views of risk.org/10. Bush. and (2) the vertical and horizontal tranching of reinsurance contracts. By the end of the week. which increases the risk of holding multiple weather derivatives. and successful are introduced. .847781 (access via Athens login http://www.1540-6296.01203. This article initiates a discussion regarding Plural Rationality Theory. Brian (2012). Kitching. The discussion at the meeting focused on an event that recently came to the firm's attention—an unexpected disruption in the firm's coal supply over the coming year due to necessary repairs in railroad facilities near the coal source.1080/10920277.x (access via Athens login http://www. We consider pricing weather derivatives for use as protection against weather extremes by using max-stable processes to estimate risk measures. Fuel risk management at American electric power. [RKN: 46581] North American Actuarial Journal (2013) 17(4) : 283-296. Marjorie L.doi. Baldwin.net/)/ Erhardt. Internet URL: http://www. Rives. and interacts the risk management process with the strategic planning process.x (access via Athens login http://www. Senior management has put in place a risk governance structure that facilitates the identification of major risk exposures. These derivatives are not currently traded on any open markets.Boyer.12 pages. but their use could help some institutions manage weather risks from extreme events.net/ RISK MANAGEMENT AND INSURANCE REVIEW Buck. Using a two-factor cost model.doi. Elliott. An industrial organization theory of risk sharing. where the theory has a particularly strong impact on risk management patterns. widely acceptable. Both capture the spatial dependence of payments.doi.net/) Johnson. DOI: http://dx. Collective approaches to risk in business: an introduction to plural rationality theory.doi. In addition. Elijah (2013). .22 pages.1111/j. We devise a statistical test for attrition bias and conclude that sample attrition does not significantly alter our results. Available via Athens: Wiley Online Library This article describes a disaster planning exercise undertaken by a University class of risk management students DOI: http://dx. As the joint likelihood function for max-stable processes is unavailable.openathens. Employment outcomes are better in firms with more proactive return-to-work policies than in firms with more restrictive policies. This theory is now widely applied and can provide a powerful paradigm to understand group behaviors. where it provides insights into perceptions of risk and the dynamics of firms and markets.21 pages. Charles M (2013). Robert J.2013. while the ABC method naturally incorporates parameter uncertainty. and then simulate payments for a general collection of weather derivatives. [RKN: 73818] Risk Management and Insurance Review (2012) 15 (1) : 1-22. [RKN: 73820] Risk Management and Insurance Review (2012) 15 (1) : 35-55. Richard J. we use bootstrapping with the composite likelihood approach. Members of the AEP Enterprise Risk Oversight group have just returned from a meeting of the Risk Executive Committee. DOI: http://dx. Additional changes needed to make risk management more comprehensive. Outcomes measured at 6 and 12 months postonset include: duration of initial work absence and the probability of returning to stable employment. Greg.openathens.2011. The method described utilizes results from spatial statistics and extreme value theory to first model extremes in the weather as a max-stable process. William G. Côté. [RKN: 46582] North American Actuarial Journal (2013) 17(4) : 297-305.openathens.net/)/ Ingram. Available via Athens: Wiley Online Library The senior management team and board of directors at American Electric Power (AEP) have emphasized the importance of an Enterprise Risk Management approach for dealing with the wide array of risk exposures that the firm faces. Our model offers a theoretical foundation for two empirical regularities that are observed in the reinsurance market: (1) the choice of specific attachment (the deductible) and detachment points (the policy limits or the retrocession). David. M Martin. Available via Athens: Wiley Online Library We analyze the outcomes of occupational back pain among four large employers that use one or more of the following disability management practices: aggressive return to work. [RKN: 74503] North American Actuarial Journal (2014) 18 (3) : 379-393.org/10.2011.x (access via Athens login http://www. we show how reinsurance should be optimally layered (with attachment and detachment points) for a given book of business in order to minimize the cost and total premium associated with catastrophic events. the Risk Executive Committee would like the groups to identify other possible adverse events that could occur and steps that should be taken now in preparation. The principles are also shown to have been evident in the run up to – and the reactions after – the 2008 financial crisis. and the second is based on approximate Bayesian computing (ABC). the Enterprise Risk Oversight group needs to communicate with the relevant teams within the organization as part of its effort to identify the potential repercussions of the event for the enterprise.net/) 55 .1111/j. Butler.2013. . Douglas. Smith. from roles within organizations to macro level economics. Dwayne. and the consequences of that singular view are discussed. Thomas. The theory has only recently been utilized in business and finance. The theory is introduced and the concepts are applied with business terms and examples such as company strategy.openathens. Laura (2012). foreign institutional shareholding has increased significantly largely at the expense of domestic financial institution ownership.openathens. and forecasting of large scale. Our analysis implies that the four frameworks need to be considered jointly. Internet URL: http://www.30 pages. DOI: http://dx. assessing. We focus on four of these frameworks. [RKN: 70640] Risk Management and Insurance Review (2012) 15 (2) : 225-254. The game provides teachers with a discussion platform for numerous aspects of insurer risk pooling. organizational. This article is an attempt to review the current situation as regards IPF in the EU and to discuss possible development scenarios. There is also a continuous debate since 2001 among the member states on the need for such a system at the community level. Internet URL: http://www. Albin (2013). and evaluators (analysts. namely the Solvency II framework. Pope. The insurance pricing game presented here gives the students a unique way to apply statistical analysis in the classroom. Joël. Available via Athens: Wiley Online Library In the European insurance industry. but for institutions outside Europe. Available via Athens: Wiley Online Library Understanding data and statistical distributions is a fundamental part of an undergraduate business student's education. Relative to that relationship.2011. auditors. Specifically. Based on existing knowledge. large impact. and the conforming limits on the forecasting art that arise from different views of possibilities is addressed.1111/j. Our results show that higher levels of domestic financial institution ownership in Japan are associated with insurer inefficiency. Zemp. Available via Athens: Wiley Online Library The article discusses professional best practice implications stemming from differing varieties of thinking about black swans. The possibilities of rare event recognition in general.openathens. An insurance pricing game. investors.org/10. the article uses mainstream model and analyst failure dynamics to develop a way to better recognize and time large scale. the proposed IFRS 4 Phase II international accounting standards. due to various interrelations and interactions. and the new solvency directive (so-called Solvency II) are not fail-safe solutions. and Market Consistent Embedded Value reporting. and societal—are revealed by introducing holistic methods for better recognizing. and policyholder perspectives. Additionally. we find that the disparity between those relationships has become more acute since 2001 when the Japanese non-life insurance market experienced significant consolidation. assessment. We present these frameworks. Since that time. To achieve this. .1540-6296. When black swans aren't : On better recognition. Available via Athens: Wiley Online Library Traditional shareholding patterns in Japan have experienced significant change beginning in the early 1990s. Looking at banking is especially interesting. Alexandra (2012). [RKN: 73821] Risk Management and Insurance Review (2012) 15 (1) : 57-88.doi.2011. since market discipline in this field has been studied extensively. Furthermore. Even the prospective implementation of provisions strengthening supervisory bodies. rating agencies) to monitor and influence a company's management. .net Fritz.net/) Monkiewicz. and managing emerging large scale.openathens.1111/j.openathens. comprehensive approach to insurance reporting and regulation and its implementation in order to achieve the goals set by the frameworks. The experiences of the latest financial crisis have raised new arguments for reorganizing the existing system to avoid regulatory arbitrage and to strengthen consumer security.x (access via Athens login http://www. we analyze the challenges of a holistic.net/) Haley. Yu-Luen.01202. Werther. [RKN: 73822] Risk Management and Insurance Review (2012) 15 (1) : 89-106. The findings are of relevance not only for European insurers and regulators.x (access via Athens login http://www.32 pages. rare events thought by most people to be unpredictable black swans.2011. large impact.org/10. . insurance guaranty systems. Joseph D (2012). large impact rare event emergence. In particular. .org/10. Opportunities for securing comparative advantages—individual. analyze them from the insurance company's management.1540-6296. As a result around a third of the market is without any collective protection.12 pages. DOI: http://dx. Insurance protection funds in the European Union—Quo Vadis?.23 pages. brokers).39 pages. Li-Ying. 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. the foreign ownership–insurer efficiency relationship is found to be positive. we develop a framework for researching market discipline in insurance that includes its most important drivers and impediments. the students must decide what “premium” to charge the members of a hypothetical risk pool. The game requires decision making about risk with limited information. Internet URL: http://www.01213.doi. Available via Athens: Wiley Online Library Contrary to the development in other major insurance markets in the world only 13 out of 27 EU member states have introduced until now some type of insurance protection funds (IPF).net 56 . Nat (2012). Guntram. we assess performance in terms of efficiency measures using data envelopment analyses (DEA) techniques. Marek (2012). and compare them. investors. assessing how different philosophical groundings partner with methodological and practice implications to shape and limit practice possibilities is highlighted. .1111/j. What do we know about market discipline in insurance?.x (access via Athens login http://www. Ma.1540-6296. This article examines whether these changes in ownership patterns share a relationship with insurer performance in the non-life insurance market.01211. Foreign ownership and non-life insurer efficiency in the Japanese marketplace.Huang.openathens.net/) Eling.18 pages.net Wagner. DOI: http://dx.openathens. Martin (2012). Using data from 1992 to 2005. . Market discipline can be defined as the ability of customers. [RKN: 73824] Risk Management and Insurance Review (2012) 15 (1) : 117-128. [RKN: 70637] Risk Management and Insurance Review (2012) 15 (2) : 185-223. intermediaries (agents. [RKN: 74007] Risk Management and Insurance Review (2013) 16 (1) : 1-23. Comparison of stakeholder perspectives on current regulatory and reporting reforms.doi. and rare event change. The results highlight a significant need for continuing research. regulatory and reporting frameworks are currently subject to far-reaching reforms. Available via Athens: Wiley Online Library The aim of this article is to summarize the knowledge on market discipline in insurance and other financial service sectors. in the State of Florida is experiencing failures. surfaced during the 1950s when market insurance was perceived as very costly and incomplete for protection against pure risk. and that a combination of market problems. alternatives to market insurance. Avila.net Medders. [RKN: 74005] Risk Management and Insurance Review (2013) 16 (2) Available via Athens: Wiley Online Library This article examines how behavioral economics can be used to improve the spending decisions of retirees. Risk management has long been associated with the use of market insurance to protect individuals and companies from various losses associated with accidents. Internet URL: http://www. [RKN: 74012] Risk Management and Insurance Review (2013) 16 (1) : 123-146. We find that behavioral insurance and new instruments of alternative risk transfer are popular fields of research in nonlife insurance. governance of risk management became essential. innovative features. Internet URL: http://www.12 pages. the PSI appear to be about internalizing tacit claims in the operations of insurers. using a SPEEDOMETER (or Spending Optimally Throughout Retirement) retirement expenditure plan that employs defaults within a choice architecture.openathens. International risk regulation began in the 1980s. Nonetheless. .openathens. A key insight from practice is that a sincere pursuit of the PSI will expand the scope of corporate risk management. externalities. the fear of losing your money if you die early. are currently very important research topics. Internet URL: http://www. . Rather. definition.openathens.24 pages. Business simulations and other case study teaching methods are a way to increase student engagement in the classroom.net 57 . and risk management methods failed to prevent the financial crisis that began in 2007. Stephen M (2013). make a plan—ideally by being auto-enrolled into one or with the help of a financial adviser. these regulations. Bradley Karl. and (4) the slogan “spend more today safely” that utilizes hyperbolic discounting to satisfy the human trait of wanting jam today. particularly homeowners insurance. Available via Athens: Wiley Online Library This article summarizes the results of the 2011 Risk Premium Project (RPP) continual update.openathens. Suzawa. The study of risk management began after World War II. [RKN: 74425] Risk Management and Insurance Review (2014) 17 (2) : 265-276. Lorilee A. and critique. Smith Family Case Study.net Scordis. the PSI do not appear to be a call for stakeholder-focused insurers. The authors provide evidence of market failures in the form of undesirable market outcomes. and financial firms developed internal risk management models and capital calculation formulas to hedge against unanticipated risks and reduce regulatory capital. While the concept of sustainability is often associated with a governance design that promotes stakeholder value. Also. Available via Athens: Wiley Online Library This article examines the use of a Personal Lines Risk Management and Insurance Simulation Game in an introductory risk management and insurance (RMI) course. Recent research developments affecting nonlife insurance—The CAS Risk Premium Project 2011 Update. and policies preceding these adverse market developments and link the narrative to the evidence. Lucia (2014). Some of the largest global insurers are actively pursuing the recently enacted Principles for Sustainable Insurance (PSI). too. problems. Spend more today safely : Using behavioral economics to improve retirement expenditure decisions with speedometer plans. Nyce. The plan involves just four key behavioral nudges: (1) first. It is difficult to convince students of the consequences of such decisions because most realize that the individual likelihood of suffering an insurable loss is quite small. The aim of RPP is to review the actuarial and finance literature on the theory and empirics of risk assessment for property–casualty insurance. Moreover. Other forms of risk management. David. and interventions unique to Florida led to these failures. both over time and in comparison to other coastal states. which is designed to tackle the aversion to large irreversible transactions and losing control of assets.” Internet URL: http://www. governance rules. Market implications of public policy interventions: the case of Florida’s property insurance market. Charles M. the financial crisis has stimulated new work on corporate governance and insurance. that is. [RKN: 74006] Risk Management and Insurance Review (2013) 16 (2) Available via Athens: Wiley Online Library This article asserts that the market for property insurance.net Kerr.20 pages.Eling. Nicos A. and so allows the greatest possible degree of flexibility in managing the rundown of retirement assets.net Dionne. Yoshihiko. Zwick. Astrid. and objectives and grading for the game have been provided. Internet URL: http://www. Capital allocation and enterprise risk management.net Blake. Concomitantly. Georges (2013). Boardman. Students also fail to understand the complexity of making these trade-off decisions multiple times in a given period for each different loss exposure they face. Risk management: History. (2) automatic phasing of annuitization. Tom (2013). [RKN: 74009] Risk Management and Insurance Review (2013) 16 (1) : 35-46. Internet URL: http://www. Personal lines risk management and insurance simulation game. Because no one knows for sure what will happen in the future. The use of derivatives as risk management instruments arose during the 1970s.openathens.openathens. which can translate into a greater likelihood of higher learning outcomes. . as companies intensified their financial risk management. Ruckner. (3) capital protection in the form of “money-back” annuities that deals with loss aversion.12 pages. A description of the purpose of the game. This article can be used as a step-by-step guide to implement this simulation in RMI courses at other universities to increase student engagement and enhance student learning. and the chief risk officer positions were created. integrated risk management was introduced. Martin (2013). game specifics. and to reinforce the idea that “buying an annuity is a smart thing to do. J (2013). Dana A. [RKN: 74081] Risk Management and Insurance Review (2013) 16 (2) : 147-166. Principles for sustainable insurance: risk management and value. and expanded rapidly during the 1980s. . Conceptual and empirical literature on shareholder value maximization suggests that when an insurer honors its tacit claims the value to shareholders increases. they provide a narrative description of the market events. Recommendations for a return to risk-based pricing and incentives for appropriate property mitigation are made. there is a fundamental trade-off that influences all RMI decisions: incur a known cost today in order to reduce risk in the future even though a loss may never materialize or refuse the immediate cost that would have reduced risk even though a future loss event might still occur. net/) Dickson. Insurance: Mathematics and Economics 43. Maite (2013). Salhi.openathens.558186 (access via Athens login http://www. Available via Athens: Taylor & Francis Online This paper is concerned with a non-homogeneous discrete time risk model where premiums are fixed but non-uniform.1080/03461238.org/10.openathens. Claude. Vanduffel. Stéphane. the Wiener–Poisson risk model.openathens. we show that such upper bound does not even exist. We then show how the formula can be implemented numerically for a general value of n. [RKN: 44881] Scandinavian Actuarial Journal (2012) 1 : 56-69. Anna. interpretations and significance of the results in terms of portfolio risks will be emphasized. we can still identify a special dependence structure known as upper comonotonicity. [RKN: 44889] Scandinavian Actuarial Journal (2013) 2 : 83-102. [RKN: 44884] Scandinavian Actuarial Journal (2012) 3 : 183-202. and which values to aspire to. David C M. Understanding. We show the weak consistency of the estimator in the sense of an integrated squared error with the rate of convergence.2011.doi. In addition. Nevertheless. Maude. 403-406] to show that when the marginal distributions are fixed. Thus the convex upper bound is achieved if and only if the marginal variables are comonotonic. designed to better assess and efficiently manage inherited risks.org/10. Internet URL: http://www. Intuitively one expects that adding this information may lead to a bound that is sharper than the comonotonic upper bound.doi. Lefèvre. Available via Athens: Taylor & Francis Online In this paper. In the first part. Erlang risk models and finite time ruin problems. that it is necessary to achieve consistency in order to effectively embed risk management. Mármol. which limits to obey. Thus.net/)/ 58 . Steven (2013). we investigate when the convex order is equivalent to the weaker variance order.2010. Non-parametric estimation of the Gerber–Shiu function for the Wiener–Poisson risk model. arguing that risk culture is the product of organizational learning about what has or has not worked for it in the past. Its application is illustrated through some numerical examples of ruin problems.net SCANDINAVIAN ACTUARIAL JOURNAL Shimizu.org/10.1080/03461238. and comonotonicity. DOI: http://dx. Claramunt. [RKN: 44890] Scandinavian Actuarial Journal (2013) 2 : 103-118.openathens.Roeschmann. M Mercè. DOI: http://dx. Claudia.doi. what is rational and efficient to one subgroup might be random and dangerous for the organization as a whole. Available via Athens: Taylor & Francis Online A non-parametric estimator of the Gerber–Shiu function is proposed for a risk process with a compound Poisson claim process plus a diffusion perturbation.20 pages. providing a global view of the practical issues for longevity-linked insurance and pension products that have evolved concurrently with the steady increase in life expectancy since s. we study the situation where besides the marginal distributions. and practice suggests. Loisel. Yahia (2012). It allows one to account for the influence of inflation and interest and the effect of variability in the claims. Simultaneously. we extend Cheung (2008b) [Cheung. Bensusan. Ravanelli. DOI: http://dx. While the formal risk management framework defines which processes to use. Throughout this paper. Risk culture: what it is and how it affects an insurer's risk management. The estimator is based on a regularized inversion of an empirical-type estimator of the Laplace transform of the Gerber–Shiu function. Our main purpose is to develop an algorithm for calculating the finite time ruin probabilities and the associated ruin severity distributions. Angela Zeier (2014). Gathy.openathens. DOI: http://dx.openathens. Harry.2010.org/10. DOI: http://dx.net/) Barrieu.1080/03461238. However. Characterization of comonotonicity using convex order. Within their local context. the article frames the recent and forthcoming developments that are expected to action industry-wide changes as more effective regulation. dynamic approach. This article conceptualizes risk culture and sheds light on the role it plays in insurers’ risk management frameworks. The article follows a cognitive. Available via Athens: Taylor & Francis Online This article investigates the latest developments in longevity-risk modelling.1080/03461238. The insurance literature commonly argues. . a sum with maximal variance is in fact a comonotonic sum. and will finally highlight some important potential developments for longevity-risk management from a financial perspective with reference to the most relevant modelling and pricing practices in banking industry. The ruin probabilities are shown to rely on an underlying algebraic structure of Appell type. Next. Li. Nicole. and explores the key risk management challenges for both the financial and insurance industries. Bounds for sums of random variables when the marginal distributions and the variance of the sum are given. the article will examine the emerging scenarios.net/) Castañer. variance order. the evolution of longevity is intensifying the need for capital markets to be used to manage and transfer the risk through what are known as Insurance-Linked Securities (ILS).499261 (access via Athens login http://www. (2008b).org/10. in which case the sum behaves like a convex largest sum in the upper tail. [RKN: 74426] Risk Management and Insurance Review (2014) 17 (2) : 277-296. Hillairet Caroline. Finally.523515 (access via Athens login http://www. C. Ka Chun. and claim amounts are independent but non-stationary. However. Nevertheless. That property makes the computational method proposed quite simple and efficient.1080/03461238. rewarded or punished. it is the risk culture that defines which rules and norms are perceived to be rational and important. Shuanming (2012). We give a general formula for this joint density and illustrate how the components of this formula can be found in the special case when n=2.net/)/ Cheung.2010. Pauline. Ruin problems for a discrete time risk model with non-homogeneous conditions. [RKN: 44885] Scandinavian Actuarial Journal (2012) 3 : 203-231. the variance of the sum is also fixed.2010. The well known Lundberg bound for ultimate ruin probabilities is also reexamined within such a non-homogeneous framework.511034 (access via Athens login http://www.546144 (access via Athens login http://www. the members of a group learn which of the typically centrally prescribed formal risk management policies and procedures and which espoused risk philosophies actually work in practice in the sense of behavior that is formally or informally encouraged or discouraged. is adopted. we establish several relations between convex order.doi. modelling and managing longevity risk: key issues and main challenges. Available via Athens: Taylor & Francis Online We consider the joint density of the time of ruin and deficit at ruin in the Erlang(n) risk model. El Karoui. Yasutaka (2012). K. The article discusses key definitions that are crucial for the enhancement of the way longevity risk is understood.doi. We also discuss how the ideas extend to the generalised Erlang(n) risk model. inconsistent basic assumptions at the deepest level of risk culture are a likely feature of local subgroups. As a consequence. these expressions must be computationally tractable enough as to allow for the evaluation of associated risk measures such as Value at Risk (VaR) or Conditional Value at Risk (CVaR). Yet. On a renewal risk process with dependence under a Farlie-Gumbel-Morgenstern copula.1080/03461238. and the density of the tail of the joint distribution of ruin and the deficit at ruin in the Sparre Andersen model are completely monotone if the claim size distribution has a completely monotone density. there is an increasing number of research on optimal reinsurance decision problems using risk measures beyond the classical expected utility framework.1080/03461238. the Laplace transform (LT) of the expected discounted penalty function is derived and a detailed analysis of the Gerber-Shiu function is given when the initial surplus is zero. Scandinavian Actuarial Journal (2010) 3: 221-245] for the classical compound Poisson risk model.doi.Kuznetsov. Available via Athens: Taylor & Francis Online The ruin probability of an insurance company is a central topic in risk theory. realistic applications would require the computation of an EDPF over a finite-time horizon. (2010) [Héléne Cossette.org/10. Available via Athens: Taylor & Francis Online We prove that the complete monotonicity is preserved under mixed geometric compounding.doi. We also provide numerical examples for different choices of parameters in order to illustrate how ruin-based risk measures can be computed for these families of Lévy risk processes.2012. Vrontos. in particular for a general class of Lévy risk processes.2011. Yam. We provide expressions for the EDPF associated with these processes and we discuss in detail how a finite-time horizon EDPF can be computed for these families. Expressions for the EDPF are now available for a wide range of models. Yung. Sung. Etienne Marceau. Esterina (2014). to expected larger claim than Value at Risk and Conditional Tail Expectation which are more commonly used. Optimal reinsurance under general law-invariant risk measures. [RKN: 46734] Scandinavian Actuarial Journal (2014) 1 : 72-91. Computing the finite-time expected discounted penalty function for a family of Lévy risk processes. We consider the classical Poisson risk model when the claim size distribution and the Poisson arrival rate are unknown.doi. We establish properties of strong consistency and asymptotic normality of the estimator and study bootstrap confidence bands.openathens. DOI: http://dx. [RKN: 46737] Scandinavian Actuarial Journal (2014) 2 : 125-158.org/10. insurance layers serve as the optimal solution. Morales.doi.1080/03461238.net/)/ Cheung. On the complete monotonicity of the compound geometric convolution with applications in risk theory.647061 (access via Athens login http://www.openathens.636880 (access via Athens login http://www.org/10. general risk measures play an important role in risk management in both finance and insurance industry. the Laplace transform of the ruin time.net/)/ 59 .1080/03461238. in the sense that the corresponding optimal reinsurance still provides the protection coverage against extreme loss irrespective to the potential increment of its probability of occurrence. In this paper. DOI: http://dx. we present a simulation example in order to investigate the finite sample properties of the proposed estimator. [RKN: 46736] Scandinavian Actuarial Journal (2014) 2 : 116-124. S C P. Stathis. DOI: http://dx. Finally. A similar approach is then used to tackle the same optimal reinsurance problem under Value at Risk and Conditional Tail Expectation.openathens. [RKN: 46746] Scandinavian Actuarial Journal (2014) 4 : 283-308. Available via Athens: Taylor & Francis Online In recent years. Available via Athens: Taylor & Francis Online In this article. Given a sample of inter-arrival times and corresponding claims. including the beta and theta families of Lévy processes. These two results highlight that law-invariant convex risk measure is better and more robust. whose construction is tailor-made for computational ease.2011.690247 (access via Athens login http://www.openathens. it has been widely acknowledged that it contains information that is relevant from a risk management perspective. K C J. Fouad Marri (2010). Several illustrative examples will be provided. These examples are based on the recently introduced meromorphic processes. We consider that the inter-arrival times follow the Erlang(n) distribution. S P (2014). Ka Chun.net/)/ Masiello. Another drawback of existing examples is that the expressions are available for an infinite-time horizon EDPF only.2012. On semiparametric estimation of ruin probabilities in the classical risk model.2011. we propose a semiparametric estimator of the ruin probability. In this paper we address these two issues by studying examples of risk processes for which numerical evaluation of the EDPF can be readily implemented. Chuancun (2014).627747 (access via Athens login http://www. instead of stop-loss reinsurances.663730 (access via Athens login http://www. DOI: http://dx. Yin. in order to capitalize on this potential for applications.doi.net/)/ Chiu. for exponential claim sizes explicit expressions and numerical examples for the ruin probability and the LT of the time to ruin are given. we consider an extension to the renewal or Sparre Andersen risk process by introducing a dependence structure between the claim sizes and the interclaim times through a Farlie-Gumbel-Morgenstern copula proposed by Cossette et al. Explicit expressions for the discounted joint and marginal distribution functions of the surplus prior to the time of ruin and the deficit at the time of ruin are derived. It is proved that this function satisfies a defective renewal equation and its solution is given through the compound geometric tail representation of the LT of the time to ruin. Analysis of ruin measures for the classical compound Poisson risk model with dependence.org/10. we first show that the stop-loss reinsurance is an optimal contract under law-invariant convex risk measures via a new simple geometric argument. and hence show that the ruin probability. Further. Available via Athens: Taylor & Francis Online Ever since the first introduction of the expected discounted penalty function (EDPF). [RKN: 46730] Scandinavian Actuarial Journal (2014) 1 : 1-31.org/10.openathens. Yet. Most of the models studied so far offer few interesting examples for which computation of the associated EDPF can be carried out to the last instances where evaluation of risk measures is possible. it is interesting to note that.net/)/ Chadjiconstantinidis. By studying the roots of the generalised Lundberg equation. Manuel (2014).1080/03461238. Alexey. DOI: http://dx. Spyridon (2014). Sung Nok. Zehnwirth & Dubossarky [Barnett. we consider a robust approach. Available via Athens: Taylor & Francis Online Numerical evaluation of ruin probabilities in the classical risk model is an important problem.net/)/ Liu.org/10. M. Sylvain (2014). then such evaluations are challenging. In order to find the results. J.org/10. We have chosen to refer to this dynamic as ‘informative masking’ since additional information regarding the masking sets will be allowed to be incorporated. Lee.net/)/ Yener. our technique is to transform the problem into a deterministic differential game first. Siu. David. E.doi. To incorporate model uncertainty. I J B F. we consider a portfolio of risks consisting of two subportfolios. Available via Athens: Taylor & Francis Online In the present paper.2012. The investor withdraws money from the portfolio at a constant rate proportional to the portfolio value. Via this method. Jae-Kyung (2014). the optimal investment strategies for minimizing the probability of lifetime ruin under borrowing and short-selling constraints are found.org/10. Consistent loss prediction for a portfolio and its subportfolios.org/10.net/)/ Fuchs. Available via Athens: Taylor & Francis Online In this article. in the special case of a completely monotone claim size distribution we develop an algorithm to estimate the ruin probability by approximating the excess claim size distribution with a hyperexponential one. Available via Athens: Taylor & Francis Online In this paper. [RKN: 46891] Scandinavian Actuarial Journal (2014) 6 : 510-534.net/)/ Vatamidou. [RKN: 46894] Scandinavian Actuarial Journal (2014) 7 : 583-601. [RKN: 46893] Scandinavian Actuarial Journal (2014) 6 : 561-581. Haluk (2014).doi. Numerical examples that illustrate the usefulness of these enhancements will also be furnished. SC-CR Algorithms with informative masking. Peter. We describe the surplus of an insurance company using a general jump process.org/10. we show how the application of stochastic optimal control is possible for minimizing the probability of lifetime ruin problem defined under an auxiliary market. an auxiliary market is constructed. DOI: http://dx. Finally. and we study the problem of whether or not the predictors based on the subportfolios are consistent with those based on the full portfolio. Adan. Willmot.openathens. However. A note on deficit analysis in dependency models involving Coxian claim amounts. Yiu. On the accuracy of phase-type approximations of heavy-tailed risk models. B. Optimal investment of an insurer with regime-switching and risk constraint.net/)/ Landriault.openathens. where a family of probability measures is cosidered and the insurance company maximizes the expected utility of terminal wealth in the ‘worst-case’ probability scenario. What is not clear though is how many phases are enough in order to achieve a specific accuracy in the approximation of the ruin probability. and the techniques of stochastic optimal control are used. which was first observed by Barnett. Wing Yan. Various applications of this result are also considered. We study this aggregation problem for both the chain-ladder method and the additive method (or incremental loss ratio method). Blätter DGVFM (2005) 27: 49-58]. Vlasiou.1080/03461238. The optimal investment problem is then formulated as a constrained two-player.1080/03461238. The goals of this paper are to investigate the number of phases required so that we can achieve a pre-specified accuracy for the ruin probability and to provide error bounds. The investment portfolio consists of multiple risky investments and a riskless investment.2012.729154 (access via Athens login http://www. The insurance company invests the surplus in a risky financial asset whose dynamics are modeled by a regime-switching geometric Brownian motion. Tak Kuen (2014). [RKN: 46747] Scandinavian Actuarial Journal (2014) 4 : 339-351. Woo. E. a Markov-modulated random measure. we present a significant improvement to the Self-Consistent. Competing Risks (SC-CR) Algorithms that have been published in the actuarial literature over the last several years. we also give a short proof for this duality. admitting of any combination of partially masked risks and interval-censored failure times.openathens.1080/03461238. H.723044 (access via Athens login http://www.693457 (access via Athens login http://www. in order to obtain the optimal strategy of the game problem explicitly. Minimizing the lifetime ruin under borrowing and short-selling constraints. The enhancements will be applied to both the double-censored as well as interval-censored SC-CR Algorithms.doi. B. Available via Athens: Taylor & Francis Online We investigate an optimal investment problem of an insurance company in the presence of risk constraint and regime-switching using a game theoretic approach. Also.2012. Gordon E. Different from the other works in the literature.org/10.openathens.2012. we consider a fairly large class of dependent Sparre Andersen risk models where the claim sizes belong to the class of Coxian distributions. In the case of the chain-ladder method we extend results of Ajne [Ajne. Separierung von Abwicklungsdreiecken nach Basisschäden und Großschäden. Caron.openathens. Additivity of chain-ladder projections. namely. Zwart. ASTIN Bulletin (1994) 24: 311-318] and Klemmt [Klemmt. Sebastian (2014). A dynamic risk constraint is considered where we constrain the uncertainty aversion to the ‘true’ model for financial risk at a given level.1080/03461238.749508 (access via Athens login http://www. using the duality of the chain-ladder method applied to incremental losses. DOI: http://dx. Ka-Fai Cedric.1080/03461238. Zehnwirth.net/)/ 60 . DOI: http://dx. an attractive way is to approximate the claim sizes with a phase-type distribution..doi.Adamic. We analyze the Gerber-Shiu discounted penalty function when the penalty function depends on the deficit at ruin.2012. If claim sizes are heavy-tailed. zero-sum. DOI: http://dx. DOI: http://dx. These algorithms were fairly flexible. To overcome this. DOI: http://dx.1080/03461238. we compare our approximation with the heavy traffic and heavy tail approximations.doi. When can accident years be regarded as development years? Proceedings of the Casualty Actuarial Society (PCAS) (2005) 92: 239-256]. We show that the system of equations needed to solve for this quantity is surprisingly simple. B (2014). G. In this paper.745448 (access via Athens login http://www. [RKN: 46886] Scandinavian Actuarial Journal (2014) 5 : 405-423. and Dubossarsky.2012. we wish to show here that the SC-CR Algorithm can be further generalized to allow for each specific decrement to have its own distinct interval-censored range for any given individual observation. [RKN: 46892] Scandinavian Actuarial Journal (2014) 6 : 535-560.750621 (access via Athens login http://www. stochastic differential game between the insurance company and the market. In the case of the additive method the aggregation problem has not been studied before and its solution is surprisingly simple.doi.openathens. Jingzhen. org/issues Eling.openathens. Two unconditional (discrete) distributions obtained are studied and used in the collective risk model to compute the right-tail probability of the aggregate claim size distribution. This study presents a method to balance the opposing forces of growth and profitability. Unconditional distributions obtained from conditional specification models with applications in risk theory.actuarialsociety.net/)/ Shimizu. Hayes.doi. the topic uniquely explained herein is how the DFT treats the probability of amounts that overflow its upper bound. A framework for the management of operational risk is discussed. and the scale function of spectrally negative Lévy processes. e. specifically. We shall also give applications to evaluation of the VaR-type risk measure due to ruin. Like its European counterparts. Through an industry survey. Our results have implications for managers. the conditional specification technique is applied to look for more flexible distributions than the traditional ones used in the actuarial literature.org/issues 61 . The discrete Fourier Transform and cyclical overflow. These distributions play an important role in specifying the conjugate prior in certain multi-parameter Bayesian settings. Mark (2013). Sebastian D (2012). of which operational risk forms a significant part. Internet URL: http://www. Available via Athens: Taylor & Francis Online Bivariate distributions. specified in terms of their conditional distributions. In this paper. which may lead to its wider use.org. It presents principles and initiatives that have the potential to assist insurers in their identification and management of operational risks. As a result greater focus is being placed on the appreciation of risks facing firms.net/) Internet URL: http://www. We give higher-order expansion of the ruin probability.2012.openathens. The proposed method is straightforward and can be effectively employed by property and casualty insurers in their strategic planning process. The cyclical overflow originates in the modular arithmetic whereby the DFT evaluates characteristic functions. this paper assesses perceptions towards operational risk. Marilyn. Emilio. However. The expansion formula is obtained via the Edgeworth type expansion for compound geometric distributions. as the Poisson. regulators. Calderín-Ojeda. Available via Athens: Taylor & Francis Online This paper presents an asymptotic expansion of the ultimate ruin probability under Lévy insurance risks as the loading factor tends to zero. a topic that others either have not noticed or have deemed of little importance.variancejournal. Irrational growth is one of the of reasons for the insolvencies of property and casualty insurance companies. Title: Optimal growth for P&C [property and casualty] insurance companies It is generally well established that new business produces higher loss and expense ratios and lower retention ratios than renewal business. Edgeworth type expansion of ruin probability under Lévy risk processes in the small loading asymptotics. Ironically. Enrique (2014).org/10. Optimal growth for P&C insurance companies. More casualty actuaries would employ the discrete Fourier transform (DFT) if they understood it better. [RKN: 47261] Variance (2014) 8(1) : 73-79.4314/saaj. The new specification draws inferences about parameters of interest in problems appearing in actuarial statistics.variancejournal. DOI: http://dx. Leigh Joseph (2014). [RKN: 46586] South African Actuarial Journal (2013) 13 : 39-95. any order of which is available in explicit form. Yasutaka (2014). negative binomial and others. Do underwriting cycles matter? An analysis based on dynamic financial analysis. the Ornstein-Uhlenbeck process. Martin. In addition to the many fine papers on the DFT.org/10.g.openathens. Solvency Assessment and Management (SAM). Operational risk management: practical implications for the South African insurance industry. and discuss a certain type of validity of the expansion. [RKN: 46895] Scandinavian Actuarial Journal (2014) 7 : 602-619. We find that underwriting cycles have a substantial influence on risk and return measures. We integrate underwriting cycles in a dynamic financial analysis framework using a stochastic process. [RKN: 46896] Scandinavian Actuarial Journal (2014) 7 : 620-648. Internet URL: http://www. Internet URL: http://www. DOI: http://dx.Gómez Déniz. [RKN: 43666] Variance (2012) 6(2) : 131-142. the South African insurance industry is moving towards its own risk-based regulatory regime. both in internal risk-management practices and for the purposes of regulatory compliance. to determine risk-based capital requirements.1080/03461238. and rating agencies that use such models in risk management.net/)/ SOUTH AFRICAN ACTUARIAL JOURNAL Martin. Furthermore. DOI: http://dx.2012.za/Professionalresources/SAActuarialJournal. The aim of this paper is to analyze the impact of underwriting cycles on the risk and return of non-life insurance companies.variancejournal. Marek. this paper might be regarded as just one more introduction.v13i1. to add more new business. Comparisons with the compound Poisson and compound negative binomial are made.doi. Luyang (2012).755937 (access via Athens login http://www.3 (access via Athens login http://www. which is fitted to empirical data and used to analyze the impact of these cycles on risk and return. To understand this is to attain a deeper understanding of the DFT. as well as views on the SAM regulations for the calculation of operational risk capital.org/issues Halliwell.. high-level feasibility of an industry-wide operational-risk consortium database is studied. [RKN: 43610] Variance (2012) 6(1) : 102-121.1080/03461238.doi. This paper aims to review operational risks as they pertain to South African insurers. provide a powerful tool to obtain flexible distributions. an insurer needs higher profitability in order to generate the additional capital needed to support its exposure growth.aspx VARIANCE Fu.org/10. as is the use of operational-loss data in this framework.751674 (access via Athens login http://www. Rae. [RKN: 46123] With a contribution from Max Wong . [chapter 9] -.216 pages.central clearing. . Models for quantifying risk.p. . . Internet URL: http://sias. longevity risk. . Internet URL: http://search.com/login. Ian. 183. Schlesinger.London: Incisive Media. Internet URL: http://www.actuaries.uk/resources/papers/ Atkins. impact and implications. Eduardo (ed). Wong.p. and long term.6th ed. .London: Staple Inn Actuarial Society. 685 pages. Chris.com/login. [RKN: 75583] Shelved at: Online.Books and monograph papers on Risk Management acquired by the IFoA libraries Ashcroft.textbook Shelved at: UHG (Lon) Bird.5th ed.183 pages. unlike the solvency issues within other financial sectors.xxvi.Risk and Investment Conference 2012 Queens Hotel. . Francesca (ed). . . 27-29 June 2012. Alvar. Shelved at: AZA/BYF/BYG/EEQ (Lon) Biagini. [slide presentation]. 2014. Computation and modelling in insurance and finance. Palgrave Macmillan. Institute of Actuaries and Faculty of Actuaries.xiv. Risk measures and attitudes. Moorad. Michael (ed) (2014). Punter. Shelved at: EEQ (Lon) Chambers. published 2008.uk/research-and-resources/documents/application-actuarial-function-general-insurance-companies (slide presentation) Camilli.org. . discounting and other issues [slide presentation].1st edition originally published 1999. Dick (2012). This title looks at the major risk concerns within insurance and how the industry as a whole deals with potential threats to its business in the short. The executive guide to enterprise risk management : Linking strategy. . OTC Derivatives . . . Application of the actuarial function to general insurance companies : Report of the Actuarial Function Working Party.ebscohost. . tail-event risk (catastrophe). . Bulmer. Liquidity risk: a growing challenge in insurance. 200 pages. Max (2014). Keshani. [RKN: 46109] Paper presented to the Institute and Faculty of Actuaries on 4 November 2013. risk and value creation. An introduction to Value-at-Risk. [RKN: 43874] Earlier publication: Counterparty credit risk: measurement. counterparty risk. Fitzsimmons. [RKN: 43760] Shelved at: Online only. Stephen J. Sameer. [RKN: 43877] Shelved at: BU/EF/WK (Lon) Shelved at: 368. .t. Pykhtin. Alex (2013). Risk Books.ix. Gower. . London. . medium. [2]. 2013.org. Martin. 2014. Wilson.org. The rules of project risk management : Implementation guidelines for major projects. [RKN: 46212] Slides presented to Staple Inn Actuarial Society.Hoboken NJ: John Wiley. Duncan. 2013. Erik (2014).uk/research-and-resources/documents/a04-centralised-clearing-otc-derivatives Chapman.01. . Harris (ed). It will demystify how insurers cope with liquidity risk.London: Institute and Faculty of Actuaries. pricing and hedging.xxii.xxii. . 524 pages.International Series on Actuarial Science.ebscohost. Risk management issues in insurance : Trends in best practice. The financial crisis of 2008 had little impact on the insurance industry globally. . Berlin: Springer. Michael. Connecticut: Actex. Bolviken. J Richard. Graham (2014). 2014. Alan (2012). Emily. Shelved at: Online only.London: Bloomsbury. .London: Airmic. and the impact of climate change. Robert J (2014). [RKN: 75588] Shelved at: Online. . Marcuson. 2013.EAA series. Counterparty credit risk: measurement. Richard L (2014). Gordon.Foreword by Carol Alexander -. pricing and regulation. 2014. Richter. [RKN: 43867] European Actuarial Academy series .[3]. London Shelved at: ifp 2013/11 (Lon) Internet URL: http://www.31 pages. . 2013. 2014. [RKN: 46235] Library holds earlier editions Shelved at: UG/VXK (Lon) Canabarro. 2012. [1] pages.aspx?authtype=athens&profile=ehost&defaultdb=nlebk Choudhry. Penn. 331 pages. Leeds.aspx?authtype=athens&profile=ehost&defaultdb=nlebk Chappell.t. 2012. 2014. [RKN: 43527] 'A report by Cass Business School on behalf of Airmic sponsored by Crawford and Lockton' . Christopher (2013). 91 pages.Winsted. Andreas (ed) (2013). [RKN: 74392] Shelved at: 519. Internet URL: http://search. 6 May 2014 Shelved at: Online only. Anthony. Parsons. Derek.Cambridge: Cambridge University Press. Roads to ruin: a study of major risk events: their origins. .264 pages. Tim (2013).actuaries.43 pages.287. Shelved at: EEQ (Lon) 62 . there is a need for better evidence to guide support in sovereign DRFI programs. Daniel. Ed (2012). David. .genevaassociation.xx. 2013. Internet URL: http://www. Realistic modelling of dynamic management actions is critical to many areas of the financial management of a life insurance company today. A global and detailed picture of the major 2011 natural catastrophes and an analysis of the role and mechanisms of insurance in managing climate risk and other extreme events. Is there a place in the UK mass market for a guaranteed pensions product? [slide presentation]. Institute of Actuaries and Faculty of Actuaries. Kingsley Washoma." As operational risk management programs continue to grow in financial firms around the world. Viktor Knava.International Series on Actuarial Science. Christophe. .155.31 pages.01. . Julie. and Global Facility for Disaster Reduction and Recovery project to improve the evidence base for sovereign DRFI. Stahel. Edward W. 2012. phase 1: overall methodology paper . 503 pages.com/login.sias. Paolo. [RKN: 74968] (2012) 5 Shelved at: online only. under some circumstances. Olivier.show how understanding DMA and its interactions with dynamic policyholder behaviour can improve a company’s Enterprise Risk Management. Poulter. Alain. [RKN: 46224] Shelved at: UGR/UHG (Lon) Frees. Richard A. economists and insurers that underline the significant importance of risk adaptation and management measures in developing physical and economic resilience to natural catastrophes. in Operational Risk Management . Gary Martin.pdf Courbage. 6 March 2012 Shelved at: Online only. 2014. Paul Barker. Geneva Association. Stuart Jarvis. Internet URL: http://www. In our overview of this topic we will: . Gareth Jones. Solvency II. David Hunter. she shares her extensive experience in this field with you.xix. to maximise their impact and reduce the human and economic cost of disasters. Walter R (2012). Impact appraisal for sovereign disaster risk financing and insurance project. The frequency and severity of humanitarian disasters will continue to grow in the coming years and at an accelerated pace. Dana. Internet URL: http://search. Shelved at: ifp 2014/03. Today.Risk and Investment Conference 2012 Queens Hotel. Low-income countries and donors are becoming increasingly interested in sovereign disaster risk financing and insurance (DRFI) as a way to increase financial resilience to disaster events. Morgan.aspx?authtype=athens&profile=ehost&defaultdb=nlebk 63 . Peter Murphy. [RKN: #77006] Shelved at: 658. Tessa Page. . as well as implementing an effective operational risk framework. ALM etc).London: Staple Inn Actuarial Society. Internet URL: http://www. [RKN: 43537] Slide presentation to Staple Inn Actuarial Society. Foroughi. . Norman. Gilliam Foroughi. [RKN: 43743] This paper presented the work of the Investment Products for Retirement Savings Working Party comprising Scott Eason. Neil. Philippa X (2013). Operational risk management: A complete guide to a successful operational risk framework. and systems or from external events. Bevan. then it must be operational. The report comprises nine essays by leading insurance academics. Kent. John Harsant.aspx?mode=free&keyword=geneva%20report Eason. However. Martin (2013). von Dahlen.explain what is meant by dynamic management actions (“DMA”) and what the main types of DMA are. World Bank. . [RKN: 46153] Paper used to inform on sessional research event: 'Is financial protection against disasters worth it for developing countries?' A panel discussion on how actuaries are helping to answer this question'.org/Home/Results. people.16 pages. Nnamdi Odozi.Clark. . and Michel Noel (World Bank) with Daniel Clarke (World Bank) speaker for the paper. materially influence calculated results. held at the Institute and Faculty of Actuaries.uk/sites/all/files/documents/pdf/drfi-paper-13-03-14 0. Girling. Bazzurro.org. so does the need for information on identifying and managing key operational risks. This paper presents a stylised overview of 15 technical background papers contributed to the first phase of a joint UK Department for International Development. Hallegatte. . Risk assessment and decision analysis with Bayesian networks. 328 pages. Scott. Adam. who was named one of the "top 50 faces of operational risk" by Operational Risk and Regulation magazine. Previous definitions of operational risk took the view that if the risk was not captured in market or credit risk programs. It also provides the implicit “lessons learned” from the catastrophes that will enable better risk assessment and adaptation to similar risks in future. Jeremy. Dominic. Predictive modeling applications in actuarial science : Volume 1: Predictive modeling techniques. Shelved at: Online only.uk/siaspapers/search/view%20paper?id=SIASPaperMar2012 http://sias. 2014. Tse-Ling.uk/resources/papers/ Clarke.org. Wiley. Karl Murray. 24 March 2014.ebscohost. Shelved at: online only. 2012.illustrate how improved modelling of DMA can. . 2013.uk/research-and-resources/documents/e03is-there-place-dc-mass-market-guaranteed-products Fenton.Boca Raton FL (USA).The Geneva Reports . .actuaries. . a more concrete definition has been established—the most common of which can be found in the Basel II regulations: "Operational risk is defined as the risk of loss resulting from inadequate or failed processes.org. Dynamic management actions.actuaries. London: Chapman & Hall/CRC.Risk and insurance research.Cambridge: Cambridge University Press. including the important role of insurance in such mechanisms. Glenn (2014). Stéphane. . chaired by Dermot Grenham. Meyers. Extreme events and insurance: 2011 annus horribilis. Mahul. Sebastian (2014).org. Teh. Derrig. [RKN: 46177] Shelved at: EM/TK ref (Lon) Shelved at: 368. Jeev Muthulingam.introduce the areas in which DMA is important (e. .describe how DMA can be linked to real expected management behaviour (including considerations around concepts such as the Use Test).g.London: Institute and Faculty of Actuaries. Shelved at: Online only. MCEV. Bianca.147 pages. 543 pages. . de Janvry. 27-29 June 2012. . Nobody is more familiar with this situation than author Philippa Girling—an operational risk expert. Richard. Now. . Anthony Webb Shelved at: Online only. Gillian (2012). Leeds. Internet URL: http://www. . 2012.4th ed. .uk/research-and-resources/documents/heavy-models-light-models-and-proxy-models-working-paper Jones. [RKN: 43741] This paper presented the work of a working party comprising Malcom Jones.com/AthensLogin. John C (2015). [RKN: 46260] Shelved at: EC/UHG (Lon) Hursey. . . Iain. Thomas (ed). the Second Edition of Enterprise Risk Management: From Incentives to Controls clearly puts this discipline in perspective. performance measurement and value-oriented management. Jeff Neale. Christopher.London: Incisive Media. Susan M (2012). . [RKN: 46122] 'Risk management and financial institutions + website' .Hoboken NJ: John Wiley. 2012. and drawing heavily on recurring themes of complexity. Risk Books. Shelved at: Online only.378 pages. Shelved at: Online only.287. Within this framework. . Heavy models. . . accuracy and. use of the model. [RKN: 74391] Shelved at: 519. Internet URL: http://lib. Jakhria. four specific proxy models are discussed in greater detail.myilibrary. risk sharing. . . Reputational risk management in financial institutions. it skillfully examines both the art as well as the science of effective enterprise risk management practices.London: Incisive Media. [RKN: 46204] Shelved at: EC/AZM (Lon) Kriele. This paper takes a look at some of the types of proxy model available to practitioners. in particular. Wolf. . Leeds. 2012. . It is intended for working actuaries and quantitative risk managers as well as actuarial students. model based pricing. .London: Springer. Risk management and financial institutions. and lays out clear strategies to manage what is often a highly complex issue. light models and proxy models : A working paper by the Proxy Model Working Party. Along the way.International Series on Actuarial Science.com/AthensLogin.2nd ed. Cassandra.aspx http://search. Institute of Actuaries and Faculty of Actuaries.aspx?authtype=athens&profile=ehost&defaultdb=nlebk Lane.org. and real-world case studies that explore the various aspects of ERM Based on risk management expert James Lam's thirty years of experience in this field Discusses how a company should strive for balance between risk and return. Roger J. 2015. Matthew. MacIntyre.actuaries. Value. . and tools underlying risk management. . Risk modelling in general insurance: from principles to practice. Alternative (re)insurance strategies. MUnawer Shafi. Morton (ed) (2012).London: Institute and Faculty of Actuaries. . Malcolm W (2012). 571 pages. Risk management and financial institutions. Merl. Offers in-depth insights. Engaging and informative. Matthew C (2014). This book provides students and others with a firm foundation in a wide range of statistical and probabilistic methods for the modelling of risk.Gray. ruin theory and credibility.xxi. Petra (ed) (2014). suggesting a basic framework for “replicating formula” type proxies into which many current proxy models fit. . Internet URL: http://www. Relative merits of synthetic versus cash instruments: efficient portfolio construction using cash-based and derivatives instruments [slide presentation]. . Knowledge of risk models and the assessment of risk is a fundamental part of the training of actuaries and all who are involved in financial. Since the first edition of Enterprise Risk Management: From Incentives to Controls was published a decade ago. two of which are the subject of a case study.Cambridge: Cambridge University Press for the Institute of Actuaries and the Faculty of Actuaries. Risk Books. Anurag Goyal. .287.actuaries. .Oriented Risk Management of Insurance Companies focuses on risk capital. James (2014). This growth has been largely driven by the increased demands of a changing regulatory and risk management landscape set against the inability of traditional modelling techniques to keep up. 27-29 June 2012. 643 pages. Internet URL: http://www.xxiii. pensions and insurance mathematics. Modisett.Hoboken NJ: John Wiley. Hannibal. Internet URL: http://lib. 2014. capital allocation. processes. 2014. [RKN: 45763] Shelved at: BX/UHG (Lon) Shelved at: 368. Jochen (2012). particularly in the area of capital management. 336 pages. The use of proxy models within the insurance sector has grown considerably in recent years. The reader should have a basic knowledge of probability and familiarity with mathematical concepts. This leads to a key result concerning the distinction between risk scenario accuracy and risk distribution accuracy the key driver for risk capital estimation. including short term risk modelling.Wiley Finance.01.Hoboken NJ: John Wiley & Sons. [RKN: 46150] Sessional research paper presented in London.Risk and Investment Conference 2012 Queens Hotel. .uk/research-and-resources/documents/b04-relative-merits-synthetic-versus-cash-investments Kaiser. the options available in the design and implementation of a model are discussed as well as the potential impact of the choices made.aspx Hull. 24 February 2014 Shelved at: ifp 2014/02. Clara Yan. John C (2012). Value-oriented risk management of insurance companies. . Marcus. it addresses the key concepts.3rd ed. That's why James Lam has returned with a new edition of this essential guide. [RKN: 46192] Shelved at: BXQ (Lon) 64 . 2014.cover title Shelved at: EC/UHG (Lon) Hull.EAA series. A fully revised second edition focused on the best practices of enterprise risk management.xiv.org. Written to reflect today's dynamic market conditions. Lam. Enterprise risk management: from incentives to controls. Cocke. 2012.myilibrary. Solvency II).74 pages. 393 pages. .xxv.com/login.xxv. [RKN: 46133] Shelved at: UHG/AA ref (Lon) UHG/AA (Lon) Shelved at: 519. Pitts.Wiley Finance. 2012. 714 pages.ebscohost. Parit. Finally. much has changed in the worlds of business and finance. practical advice. It also makes a connection to regulatory developments (for example. aspx?authtype=athens&profile=ehost&defaultdb=nlebk Reuvid. the New York Times political forecaster Nate Silver. 65 . longevity risk and investment advice. loss function and risk measures. Written by two recognized international thought leaders in the field. to mandate ERM and to standardize ERM standards and practices. model risk has become a major concern. 2012. . [RKN: 46121] Shelved at: UA/VA/EF (Lon) Morjaria. and mitigation to the particular case of model risk.9th ed. generalized hyperbolic distribution.pdf Rozanov.org. Every time we choose a route to work. In The Signal and the Noise. Beck. . extreme value theory. exactly ERM is and. we are making a prediction about the future. the marketplace is replete with guides and references for ERM practitioners. Third. and provides a plethora of R code examples that enable the reader to replicate the results featured throughout the book. Internet URL: http://search. based on statistical inference. London. Taylor.Hoboken NJ: John Wiley. Risk Books. each of those cultures makes a valuable contribution to model risk governance.uk/research-and-resources/documents/sessional-paper-model-risk-daring-open-black-box http://www. John Wiley & Sons. Risk transparency. Financial risk modelling and portfolio optimization with R. . Matthew. adapting concepts such as risk appetite. Such risk is generated by the potential inaccuracy and inappropriate use of models in business applications. decide whether to go on a second date. until now. Is accompanied by a supporting website featuring examples and case studies in R.Louisot.actuaries.Enterprise Risk Management: Issues and cases. Explores portfolio risk concepts and optimization with risk constraints. Jean-Paul. We identify four distinct model cultures and argue that in conditions of deep model uncertainty. With the increasing use of complex quantitative models in applications throughout the financial world. Difficulties arise in mapping model errors to actual financial impact. . 2014. we routinely fail to foresee hugely significant events. [RKN: 46191] Shelved at: EEQ (Lon) Silver. Second. . Smith. Mathematics and statistics for financial risk management. .co. 304 pages. . how organizations can use it to utmost advantage. 23 March 2015 by the Model Risk Working Party Shelved at: ifp 2015/03 (Lon) online. he takes us on an enthralling insider's tour of the high-stakes world of forecasting. Tim. [RKN: 43878] Shelved at: AZA (Lon) Roberts. Internet URL: http://www.xxi. The signal and the noise : The art and science of prediction. Georgescu. 229 pages. 2015. 2014. Witts. . 427 pages. often at great cost to society.xix.534 pages. . fitting multiple models.London: Kings College London. volatility modelling and concepts for capturing dependencies. [RKN: 46231] Shelved at: EEQ (Lon) Sharma. Ryan (2015). 2012. One reason for this is that. Michael Bruce. such that. 2014.78 pages. John Wiley & Sons. until recently. economics. Graduate and postgraduate students in finance. risk management as well as practitioners in finance and portfolio optimization will find this book beneficial. Yvonne. In the case of irreducible model uncertainty. Penguin. Andrew.uk/research-and-resources/documents/model-risk-sessional-powerpoint-presentation Pfaff. The usefulness of such a framework for preventing losses associated with model risk is demonstrated through case studies. we investigate the ways in which different ways of using and perceiving models within an organisation both lead to different model risks. Internet URL: http://search. 2013. [RKN: 75100] Introduces the latest techniques advocated for measuring financial market risk and portfolio optimization. Dan.376 pages. or set aside money for a rainy day. Ye.Wiley Finance Series. . . Financial Risk Modelling and Portfolio Optimization with R: Demonstrates techniques in modelling financial risks and applying portfolio optimization techniques as well as recent advances in the field.ebscohost. Nirav (chair).ebscohost.uk/sites/all/files/documents/pdf/model-risk-working-party-paper.2nd ed. it is necessary to employ a variety of measurement approaches.London: Kogan Page. which can lead to substantial financial losses and reputational damage.uk/media/32351/king's%20final%20report07092012final. Internet URL: http://www. 317 pages. there were many disparate. From the stock market to the poker table. Ivy (2015). [RKN: 46245] Paper presented to IFoA. McRandal. internationally.org.048. . [RKN: 75789] Shelved at: 658. in addition to a technical critique.com/login. monitoring.xiii. Cann. Jonathan (ed) (2013). [RKN: 75096] Despite enterprise risk management's relative newness as a recognized business discipline.org.280 pages. Ketcham. ERM-Enterprise Risk Management provides that and much more. a model risk framework is developed.equitable. [RKN: 43542] Shelved at: Online only. common methods and challenges for quantifying model risk. In this paper we deal with the management and measurement of model risk. . Michael B (2014). operational and commercial concerns are also addressed. few case studies illustrating ERM in action have appeared in the literature. and stress and scenario analysis. . Andreas. .Risk executive reports. Ankur. . Managing business risk: a practical guide to protecting your business. Christopher (2014). Did anyone learn anything from the Equitable Life? Lessons and learning from financial crises. we discuss through the examples of proxy modelling. Model risk: daring to open up the black box. With efforts underway. Bernhard (2013). Introduces stylized facts. . Aggarwal. more importantly. Sanjay (2014).actuaries. ERM .London: Risk Books.pdf http://www. Enables the reader to replicate the results in the book using R code.com/login. Nate (2012). Tail risk hedging. Andrew.actuaries. . the need has never been greater for an authoritative resource offering risk management professionals authoritative coverage of the full array of contemporary ERM issues and challenges. from earthquakes to the economy. even conflicting definitions of what. First. Yet from the financial crisis to ecological disasters. Yet. 2013. It also serves well as an accompanying text in computer–lab classes and is therefore suitable for self–study.London: Incisive Media. Tsanakas. conditional and unconditional modelling of risk. Richard (2012). reveals how we can all develop better foresight in an uncertain world. who accurately predicted the results of every single state in the 2012 US election. Thus the space of legitimate challenges to models is expanded. Ford.London: Institute and Faculty of Actuaries. 2015. Louise. showing how we can use information in a smarter way amid a noise of data and make better predictions in our own lives.aspx?authtype=athens&profile=ehost&defaultdb=nlebk Miller.xi. We have developed appropriate generalised-linear-type models (including log-normal. Paul (2014). John Wiley & Sons. Written by a hedge fund specialist. The effect of model uncertainty on the pricing of critical illness insurance. our analysis suggests that estimates of the CDD are model-sensitive. the upheaval of the Arab Spring. value–at–risk. . A D Stott. .432 pages. and interest rate implications.Centre for the Study of Financial Innovation publications. Takigawa.com/login. using Markov chain Monte Carlo estimation techniques. Internet URL: http://www.org. benefit amount. Michael Schouten and Savita Verma . from the Credit Crunch. Internet URL: http://search. The Handbook of Market Risk is a must–have resource for financial engineers. Shelved at: ifp 2014/11 (Lon) online. Internet URL: http://search. but we seldom have solid grounds to believe that a chosen model is the same. . stress testing and back testing and banks/Basel II/III. . liquidity. the Capital Asset Pricing Model. policy type and cause of claim. enabling them to drive sustainable success while operating within appetite. Better understanding of uncertainty in CII rate graduation and pricing is important for insurers. Andrew. [RKN: 74302] Shelved at: Online. 483 pages. Internet URL: http://www.org. reflecting the need for: (i) practical adjustments to VaR estimates. Covering topics intrinsic to understanding and applying market risk. not least because of future changes in the interpretation of the “definition” of an illness or advances in medical practice leading to more efficient diagnosis and treatment.cover Shelved at: EE/ELAV (Lon) Wright. [slide presentation]. . (ii) a deeper understanding of model uncertainty and (iii) formulating risk tolerance in relation to model mis-specification. contibuting editors Vijay Krishnaswamy. 2014.10 [slides] pages. 29 October 2014 Shelved at: ifp 2014/10 (Lon) online.org. George (2014). Edinburgh. or even close. regulated and go to market. Eric (ed).ebscohost. Arbitrage Pricing Theory. Michael (ed) (2012). [RKN: 46196] Paper presented to IFoA. Christian (2014). Risk-based performance management: Integrating strategy and risk management. 2014. 2014. Prudence demands that we investigate possible explanations. gender.actuaries.ebscohost. Schouten. Under the best CDD fitting. benefit amount. the handbook employs numerous examples to underscore the application of the material in a real–world setting. which accounts for claims that have not been settled by the end of the observation. Vijay (ed). [slide presentation]. This results-focused guide to embedding risk management into strategic and operational decision-making gives executive teams the tools to align their risk-taking to strategy.aspx?authtype=athens&profile=ehost&defaultdb=nlebk Streftaris.actuaries. the uncertainty created by the Euro-zone Crisis and the increasing global influence of social media. Estimation and graduation of CII claim rates has been challenging. Featuring a format that is accessible and convenient.Full paper for publication in Annals of Actuarial Science. Palgrave Macmillan.uk/sites/all/files/documents/pdf/presentation-notes-291014. aiming at obtaining graduated rates that can be applied to estimate the future cash flow of CI policies and determine insurers’ liability more accurately. Savita (ed). risk managers in investments banks. Andreas Tsanakas and Andrew Smith discuss Monte Carlo techniques for investigating the impact of model ambiguity. benefit type. H R Waters. but claim rates and pricing are not. with co-investigators: E Dodd (Ozkok). James (2013). The analysis includes various claim risk factors (e. . A new model for management in a new time. the following risk factors are considered important for predictive purposes: policy duration. [RKN: 46222] Paper presented to IFoA. 24 November 2014 -. quantitative analysts.com/login.pdf Szylar. . Approaches to incorporate such uncertainty into decision-making are discussed. .42 [slides] pages. policy duration etc) and is performed under a Bayesian framework. .uk/research-and-resources/documents/sessional-research-event-effect-model-uncertainty-pricing-critic alhttp://www.xv. regulators. Andreas. Handbook of market risk. Critical Illness Insurance (CII) involves cover which pays out on the diagnosis of an illness which is deemed to be critical. In this project we have addressed the issue of model and parameter uncertainty in claim rate estimation.Smart. when the date of diagnosis is missing.Wiley handbooks in financial engineering and econometrics. partly due to the diagnosis of the insured event often being unclear or not recorded. The book starts by introducing the various methods to measure market risk while continuing to emphasize stress testing. . By establishing the wider context of change within business. Burr. Quantitative approaches to model uncertainty.actuaries.g. Incisive Media.London: Institute and Faculty of Actuaries. using data supplied by the Continuous Mortality Investigation (1999-2005). This introduces additional uncertainties in the evaluation of claim rates. This is achieved by considering probabilities of the distribution of the delay period between diagnosis of insured illness and settlement of the corresponding claim.London: Centre for the Study of Financial Innovation (CSFI). . Focus is on VaR calculations and the associated back-testing criterion for assessing the quality of estimation procedures. Managing illiquid assets: perspectives and challenges. Estimation of claim rates is addressed using a parametric Poisson model for the number of claims. London. [RKN: 46199] Shelved at: BU pam (Lon) 66 .London: Institute and Faculty of Actuaries. the authors explain how and why a revolution is taking place in how organizations are structured. Andrew (2014). this book introduces the Risk-Based Performance Management methodology.uk/events/one-day/sessional-research-event-quantitative-approaches-model-uncertainty http://www. manage and control the risks facing their organizations while exploiting emerging opportunities to gain and maintain competitive advantage.pdf Verma. Smith.aspx?authtype=athens&profile=ehost&defaultdb=nlebk Tsanakas. the handbook features: An introduction to financial markets. 115. the Handbook of Market Risk is the comprehensive guide to the subject of market risk.45 pages.324 pages.org.uk/sites/all/files/documents/pdf/streftarisifoasessional241114. and large–scale consultancy groups advising banks on internal systems. to the process that generated past observations. Many areas of actuarial work require the use of models. generalised gamma and generalised beta) to investigate this delay. . [RKN: 43859] Edited by Eric Takigawa.actuaries.London: Risk Books. Based on this experience. 2014. This pioneering and practical framework enables senior management to understand. Krishnaswamy. 2012. [RKN: 75101] Understanding and investigating the impacts of market risk on the financial landscape is crucial in preventing crises. and consider carefully the business implications of using a model that may turn out to be wrong. selling office. New directions for insurance: implications for financial stability. Creelman. 2013. 67 . Lee and X. distribution. exit from the positive quadrant). 14(1) 107-130). and applications to optimal problems in reinsurance. [RKN: 74372] ASTIN Bulletin (2015) 45 (1) : 175-205. This paper considers the portfolio selection and capital injection problem for a diffusion risk model within the classical Black-Scholes financial market.theactuary. When the surplus hits zero. Eugenio V. S. . we propose a numerical method to solve the optimal investment 68 .2014. We also perform illustrations working some examples for some particular gain distributions and obtain numerical results. [RKN: 47179] Annals of Actuarial Science (2015) 9(1) : 3-35. proposed by Cossette et al. Gildas (2015). We first prove the continuity of the value function and a verification theorem for the corresponding Hamilton-Jacobi-Bellman (HJB) equation. Also. Using the roots of the fundamental and the generalized Lundberg's equations. Cardoso. Scott (2015). as in the classical Cramér-Lundberg risk model. we get expressions for the ruin probability and the Laplace transform of the time of ruin for an arbitrary single gain distribution. Code of conduct. With the help of social media. C. DOI: http://dx. Globally.com/archive/2015/ ANNALS OF ACTUARIAL SCIENCE Liu.e. A modified type of dividend barrier strategy is proposed towards the end. 52.openathens.1017/asb. . analytical expressions of the contribution of each individual risk to the economic capital for the entire portfolio are derived under both the TVaR and the covariance capital allocation principle. It is also illustrated that the optimal pair of dividend barriers maximising the dividend function is dependent on the initial surplus levels. . [RKN: 75030] The Actuary (2015) February : 30-31. We then show that the optimal investment policy is a solution to a terminal value problem of an ordinary differential equation. In addition. It is said to have applications to companies with economical activities involved in research and development. Colin Ledlie outlines how the Financial Reporting Council's UK Corporate Governance Code guidance is driven by cutting-edge thinking in enterprise risk management Internet URL: http://www. civil unrest is a risk that has profoundly changed in nature Internet URL: http://www. [RKN: 75022] The Actuary (2015) March : 8. PH(m). we study a continuous-time bivariate risk process in which each individual line of business implements a dividend barrier strategy. Staple Inn Actuarial Society. the company can inject capital to keep the surplus positive.1 pages. In this paper we consider an extension to the aggregation of the FGM mixed Erlang risks. increasing levels of corporate governance legislation are forcing companies to develop enterprise risk frameworks. Furthermore. This model is dual to the well-known Cramér-Lundberg risk model with applications to insurance. Social unrest: A systemic risk.2 pages. DOI: http://dx. we demonstrate that the aggregated risk belongs to the class of Erlang mixtures. Detailed numerical examples under different dependencies via common shocks. Staple Inn Actuarial Society. Graham (2015). Staple Inn Actuarial Society.31 pages. [RKN: 74374] ASTIN Bulletin (2015) 45 (1) : 127-150.com/archive/2015/ Ledlie. Kam C (2015). In this paper. But behavioural issues can affect the way in which boards respond to the regulatory environment Internet URL: http://www. [RKN: 74371] ASTIN Bulletin (2015) 45 (1) : 207-238. On a bivariate risk process with a dividend barrier strategy.theactuary.19 (access via Athens login http://www.2014. capital allocation and dividends are given. Ratovomirija. Much like his own hill walking adventures.ADDED PAPERS TO MAY 2015 THE ACTUARY Woolford.doi.1017/asb. Ming. Portfolio selection by minimizing the present value of capital injection costs. in which we introduce the Sarmanov distribution to model the dependence structure. Eric C K (2015). 27(1) 8-22).24 (access via Athens login http://www. Lin (2010 North American Actuarial Journal. Colin (2015). we compute expected discounted dividends.32 pages. Cheung. Some advances on the erlang(n) dual risk model. Luyin.org/10. The insurance portfolios of the two insurers are correlated as they are subject to common shocks that induce dependent claims. The dual risk model assumes that the surplus of a company decreases at a constant rate over time and grows by means of upward jumps. and that the surplus can be invested in a risky asset and a risk-free asset.24 pages.org/10.net/)/ Zhou. Our objective is to minimize the expected value of the discounted capital injection costs by controlling the investment policy and the capital injection policy. On Sarmanov mixed erlang risks in insurance applications. S.org/10. which occur at random times and sizes. Rui M R. Willmot and X.com/archive/2015/ Kelly. For our framework. Most existing results on the study of the dual model assume that the random waiting times between consecutive gains follow an exponential distribution. copulas and proportional reinsurance are discussed.1 pages. Numerical examples and simulation studies illustrate the tractability of our approach. explicit solutions are derived in some special cases and a series solution is obtained for the general case. Alfredo D (2015). DOI: http://dx. We generalize to other compound renewal risk models where such waiting times are Erlang(n) distributed. G. By analysing the commonly used dependence measures. . Lin (2011 Applied Stochastic Models in Business and Industry. A mountain to climb. . E.theactuary. when the individual common gains follow a Phase-Type. as well as higher moments. K. 560-572). it is assumed that both fixed and proportional costs are incurred upon each capital injection. Yuen.openathens. In particular. Following results from S.openathens.net/) ASTIN BULLETIN Rodríguez-Martínez. Egídio dos Reis. (2013 Insurance: Mathematics and Economics. .net/)/ Hashorva. Enkelejd. It is assumed that the original surplus process of an insurance portfolio is described by a drifted Brownian motion.1017/S1748499514000165 (access via Athens login http://www. [RKN: 47138] The Actuary (2015) January (online) : 12-13.doi. we propose a discrete-time counterpart of the model and apply a bivariate extension of the Dickson-Waters discretisation with the use of a bivariate Panjer-type recursion.doi. we also show that the dependence structure is wide and flexible. To analyse the expected discounted dividends until the joint ruin time of the bivariate process (i. Zbaganu. Harris (2015). Jos. Copula function has been widely used in insurance and finance for modeling inter-dependency between risks. In addition to modelling a simple lattice structure. MacIntyre. Models of financial institutions are at risk. generated from a composition of two copulas.14 pages.1017/asb. we introduce a new class of multivariate copulas. Vernic. in particular. Cocke. countermonotonicity and independence. Zhijin. This article shows how the mathematics of lattice theory can be used to model these lottery preferences. In this paper. Although risk aversion has been used in economic models for over 275 years. Anisoara Maria. the past few decades have shown how higher order risk attitudes are also quite important.org GENEVA RISK AND INSURANCE REVIEW Schlesinger. particularly in the area of capital management. Jakhria. .2014. i. the options available in the design and implementation of a model are discussed as well as the potential impact of the choices made..2014.the-european-actuary. Christopher. DOI: http://dx.doi. Heavy models. four specific proxy models are discussed in greater detail. [RKN: 47195] The European Actuary (2015) 5(2) April : 13-14. they can have different parameters. This new class of copula functions is able to capture tail dependence. based on simple lottery preference. 20.doi. [RKN: 47291] ASTIN Bulletin (2015) 45(2) : 421-443.org/10.openathens. 24 February 2014 The use of proxy models within the insurance sector has grown considerably in recent years. a numerical study is carried out to illustrate the effect of the model parameters on the optimal policies. Jingping.net/)/ Yang. What's best for your company? Behavioral economic stress testing. DOI: http://dx. Econometric Theory.openathens.22 (access via Athens login http://www. Wang. Chen.net/)/ BRITISH ACTUARIAL JOURNAL Hursey. use of the model. 535-562). We present the corresponding recursive algorithm used to evaluate the above mentioned ruin probability and we illustrate it on several numerical examples in which we vary the model's parameters to assess the impact of the non-homogeneity on the resulting ruin probability.1 (access via Athens login http://www. [RKN: 75008] Geneva Risk and Insurance Review (2015) 40 (1) : 1-14. 2014.1017/S1357321714000221 (access via Athens login http://www. Lattices and lotteries in apportioning risk. Boon. two of which are the subject of a case study. Modisett. DOI: http://dx. But how robust are those models? Do they pass the test the current crisis has provided? Internet URL: http://www. This paper takes a look at some of the types of proxy model available to practitioners. We introduce an estimation procedure based on the empirical composite Bernstein copula which incorporates both prior information and data into the estimation.uk/research-and-resources/documents/heavy-models-light-models-and-proxy-models-working-paper THE EUROPEAN ACTUARY Berkemeijer. Finally. the composite Bernstein copula. Hannibal. Gheorghita (2015).org/10. and drawing heavily on recurring themes of complexity. The claim number process underlying this risk model is a renewal process with either Erlang or a mixture of exponentials inter-claim times (ICTs). This growth has been largely driven by the increased demands of a changing regulatory and risk management landscape set against the inability of traditional modelling techniques to keep up. DOI: http://dx.actuaries. Sessional research paper presented in London.30 (access via Athens login http://www. Sander (2015). Iain. I show how such lattices can be extended in order to develop a better understanding of higher order risk attitudes. and it has a reproduction property for the three important dependency structures: comonotonicity. Simulation studies and an empirical study on financial data illustrate the advantages of the empirical composite Bernstein copula estimation method. which yields a non-homogeneous risk process. [RKN: 47160] BAJ (2015) 20(1) : 147-166. Composite Bernstein copulas. Cassandra. suggesting a basic framework for “replicating formula” type proxies into which many current proxy models fit.org. A behavioural approach to defining such risk attitudes was developed by Eeckhoudt and Schlesinger. Ruodu (2015). Recursive calculation of ruin probabilities at or before claim instants for non-identically distributed claims.net/)/ Raducan.org/10. accuracy and. Wang. Parit. [RKN: 47292] ASTIN Bulletin (2015) 45(2) : 445-475.2015. Finally.org/10. Matthew. (2015).1017/asb. we present recursive formulae for the ruin probability at or before a certain claim arrival instant for some particular continuous time risk model. This leads to a key result concerning the distinction between risk scenario accuracy and risk distribution accuracy the key driver for risk capital estimation. Matthew C (2014). Within this framework. captains of financial industries were able to rely on their financial risk and investment models.net/) Internet URL: http://www. light models and proxy models : A working paper by the Proxy Model Working Party : Abstract of the London discussion.doi.openathens. Inspired by the Bernstein copula put forward by Sancetta and Satchell (2004.1017/asb. Raluca. 69 . For years now.doi. The claim sizes (CSs) are independent and distributed in Erlang's family. Fang.openathens.and capital injection policies.e. especially in capturing tail dependence. 2014. A risk model with varying premiums: its risk management implications. Hartman. Lemieux. we assume that the effective premium rate is determined based on the surplus increments between successive random review times. level annuities. (2009) [L B Afonso. 2007) [Albrecher.net/) Dierkes. we propose a new drawdown-based regime-switching (DBRS) Lévy insurance model in which the underlying drawdown process is used to model an insurer’s level of financial distress over time.1016/j. we estimate the change of the discounted value of future liabilities due to a proportional shift in the set of capital accumulation factors.net/) Li. Shi. Yiqing (2015).2014. David. DOI: http://dx.net/) Landriault. most notably some of its special cases. Our approximation is based on analysing the evolution of the present value function through a linear differential equation. Many of the results have confirmed the “one-jump” property of the risk model. C. e.openathens. we derive explicit formulas for a generalized two-sided exit problem. ASTIN Bulletin 39 (2009): 117-136] and Loisel and Trufin (2013) [S Loisel. Kottas. In particular. As a special case of the general DBRS model. In our analysis. [RKN: 47212] Insurance: Mathematics & Economics (2015) 60 : 38-46.net/) Asimit. [RKN: 47211] Insurance: Mathematics & Economics (2015) 60 : 29-37. Afonso et al. the Pearson product-moment correlation coefficient between the first two order statistics provides an alternative procedure to estimate the tail index of the underlying distribution. Thomas.. Ruin probabilities: classical versus credibility. Even mixture models may not be sufficiently flexible to properly fit the data. These findings are of particular importance to capital adequacy calculations with respect to interest rate stress scenarios that are part of regulatory solvency requirements. In order to demonstrate the power of this improved approximation we apply it to coupon bonds.openathens. 13 (2013): 73-102]. we prove that our method is superior to any known alternative approximation formula based on duration.openathens.doi. In this article we present a new approach to estimate the change of the present value of a given cashflow pattern caused by an interest rate shift. Bin. David. [RKN: 47209] Insurance: Mathematics & Economics (2015) 60 : 11-18. We specifically state conditions under which the survival probability is not trivially zero (which corresponds to the positive security loading conditions of the proposed model). Asymptotic results for conditional measures of association of a random sum. Lundberg’s risk process with tax.insmatheco. This is particularly important as healthcare costs rise around the world. In this paper. and to trigger regime-switching transitions. DOI: http://dx.2014. We also identify the density of the total duration of negative surplus and its individual contributions when the number of claims occurring with negative surplus levels is jointly studied.INSURANCE: MATHEMATICS & ECONOMICS Fellingham.org/10. In our proposed risk model.insmatheco.1016/j. especially when predicting future claims for new business (entire groups not in the previous year’s data). DOI: http://dx. 70 . Landriault.doi. Non-trivial limits are obtained when the dependence among the first two order statistics is considered. Hipp.doi. An incorrect model assumption can cause model misspecification which leads to reduced profits at best and dangerous. Shi. H.net/) Landriault. The outcome is far more accurate than the standard approach achieved by a Taylor expansion. The regime-dependent occupation time until ruin is later studied.2014. Li. Asymptotic results are obtained for several conditional measures of association. DOI: http://dx.1016/j. The improvement is significant in both simulated and real data from a major health insurer’s medium-sized groups.insmatheco. A D Reis. Alexandru V. [RKN: 47217] Insurance: Mathematics & Economics (2015) 60 : 98-107. Tsai and Parker (2004) [Tsai. The chosen random variables are the first two order statistics and the total sum within a random sum. In a ruin context. Bayesian nonparametric predictive modeling of group health claims.011 (access via Athens login http://www. we consider a risk model which allows the insurer to partially reflect the recent claim experience in the determination of the next period’s premium rate. DOI: http://dx.org/10. Christiane (2015). Interestingly. When review times are distributed as a combination of exponentials and claim arrivals follow a compound Poisson process.insmatheco. Occupation times in the MAP risk model. H R Waters. By some analytical arguments. Connections with other existing risk models (such as the loss-carry-forward tax model of Albrecher and Hipp. Occupation times have so far been primarily analyzed in the class of Lévy processes.org/10.doi. A comparison with their counterparts in a constant premium rate model is also presented. Ultimate ruin probability in discrete time with Bühlmann credibility premium adjustments.openathens.2014.1016/j. This will naturally allow us to revisit some occupation time results for the compound Poisson risk model. J Trufin. Li. C. Using a Bayesian nonparametric model instead can dramatically improve claim predictions and consequently risk management decisions in group health practices.insmatheco.010 (access via Athens login http://www. Finally.doi. David. Tianxiang (2015).014 (access via Athens login http://www.g.openathens. Parker. In: NTU International Conference on Finance. by capitalizing on the stationary and independence property of the process increments. a numerical example in an Erlang-2 renewal risk process is also considered. On the efficient utilisation of duration. In this paper. Models commonly employed to fit current claims data and predict future claims are often parametric and relatively inflexible. The nonparametric method outperforms a similar Bayesian parametric model. Athanasios.012 (access via Athens login http://www. and provide an explicit expression for the discounted joint density of the surplus prior to ruin and the deficit at ruin. similar mechanisms to the one proposed in this paper have been studied by. Karl Michael (2015). G. Analysis of a drawdown-based regime-switching Lévy insurance model. Blätter der Deutsche Gesellschaft fur Versicherungsmathematik (2008) 28(1):13-28] are established. a regime-switching premium model is given further consideration. we relax this assumption and provide a closed-form expression for the Laplace transform of occupation times for surplus processes governed by a Markovian claim arrival process [MAP: Markovian arrival process]. Furthermore.org/10.. we derive a matrix-form defective renewal equation for the Gerber-Shiu function.10.10.org/10.. Gilbert W. As for applications in insurance. [RKN: 47215] Insurance: Mathematics & Economics (2015) 60 : 75-82.1016/j.10. we derive an approximation formula of second order that produces nearly accurate results. 2004. and level perpetuities. (2007). Numerical examples are later considered to numerically evaluate certain ruin-related quantities.002 (access via Athens login http://www. [RKN: 47208] Insurance: Mathematics & Economics (2015) 60 : 1-10. We finally generalise the approach to a non-flat term structure. Calculating continuous time ruin probabilities for a large portfolio with varying premiums. In this paper. 2004]. Shu (2015). the nonparametric model outperforms the parametric model in predicting costs of both renewal and new business. Bulletin Français d’Actuariat. unanticipated risk exposure at worst. Our results help in understanding the extreme behaviour of well-known reinsurance treaties that involve only few large claims. Brian M (2015).11. Chen. Ortmann.10. openathens.11.1016/j. [RKN: 47223] Insurance: Mathematics & Economics (2015) 61 : 62-69.openathens. which is a hardly touched topic in the current literature. In this paper. SIAM Journal of Scientific Computing (2009) 31: 826-848]. Mario (2015). Elena. Palacios-Rodríguez. A novel pricing method for european options based on Fourier-cosine series expansions.008 (access via Athens login http://www.openathens.DOI: http://dx. for Gerber-Shiu functions within our proposed refined Sobolev space. Rodríguez-Griñolo. while leaving unchanged its worst-possible upper risk bounds. Puccetti. we introduce an explicit error bound. 2015) [K W Chau.openathens. we show that in our model the assumption of a positive dependence structure improves the best-possible lower estimate of a risk measure. Given a portfolio of risks.11.1016/j.net/) Chau.doi.net/) Sordo. H (2015). including premium principles that are not law-invariant. comparisons between existent risk measures and the proposed multivariate CoVaR are developed. Bello. and we show that such optimal contingent claims exhibit a desired monotonicity property. Suárez-Llorens. Under a consistency requirement on the risk measure that we call Vigilance.insmatheco.doi. Yang. The effectiveness of our result will be further demonstrated in the numerical studies.004 (access via Athens login http://www.2015.1016/j. Fourier-cosine method has been a prevailing numerical method in option pricing theory since the work of Fang and Oosterlee (2009) [F Fang. we study the marginal behavior of the [i]th risk under an adverse event. it indicates the Value at Risk for a financial institution that is conditional on a certain scenario. in several ways.doi. we consider a problem of optimal insurance design where the premium principle satisfies the vigilance property.insmatheco. Refer to online abstract for correct notation used. we derive for convex risk measures that the assumption of a negative dependence structure leads to improved upper bounds for the risk while it does not help to increase the lower risk bounds in an essential way. [RKN: 47220] Insurance: Mathematics & Economics (2015) 61 : 27-35. We give analytical bounds on the Value-at-Risk and on convex risk measures for a portfolio of random variables with fixed marginal distributions under an additional positive dependence structure.2014.org/10. [RKN: 47233] Insurance: Mathematics & Economics (2015) 61 : 170-180. this error bound is more conservative without making heavy assumptions on the Fourier transform of the Gerber-Shiu function. In contrast with our previous work (Chau et al. Illustrations are given in the class of Archimedean copulas. by incorporating the recently popular Fourier-cosine method. As an illustration.insmatheco. and with a non-necessarily law-invariant risk measure constraint.11.008 (access via Athens login http://www.net/) 71 . Journal of Computational and Applied Mathematics (2015) 281: 94-106].2014. given two random vectors with a fixed dependence structure.2014. [RKN: 47219] Insurance: Mathematics & Economics (2015) 61 : 17-26.2014. S C P. Miguel A. the circumstances under which the existence of some stochastic orderings among their marginals implies an ordering among the corresponding conditional risk distributions. See online abstract for correct notation used.org/10. We examine a class of utility maximization problems with a non-necessarily law-invariant utility. We show that assuming positive dependence information in our model leads to reduced dependence uncertainty spreads compared to the case where only marginals information is known. C Oosterlee. DOI: http://dx. M R (2015).openathens. and we show that optimal indemnity schedules are nondecreasing functions of the insurable loss. we show the existence of optimal contingent claims.org/10.1016/j. of multivariate survival distribution functions). Yang. Fourier-cosine method for ruin probabilities. Giovanni. the intuition that the iith component of the portfolio is riskier when it is part of a positive dependent random vector than when it is considered alone. these results are consistent with existing properties on univariate risk measures.doi.e.insmatheco.net/) Di Bernardino. Vigilant measures of risk and the demand for contingent claims. to an unusually large loss for another risk. Comparison of conditional distributions in portfolios of dependent risks. On multivariate extensions of the conditional Value-at-Risk measure. Reducing model risk via positive and negative dependence assumptions.2014. Our approximant of Gerber-Shiu functions under Lévy subordinator model has O(n) computational complexity in comparison with that of O(nlogn) via the fast Fourier transform algorithm. As a result we find that additional assumptions on the dependence structure may result in essentially improved risk bounds.11. i. In more detail. two alternative extensions of the classic univariate Conditional Value-at-Risk are introduced in a multivariate setting.. [RKN: 47218] Insurance: Mathematics & Economics (2015) 61 : 1-16.org/10. K W. These vector-valued measures have the same dimension as the underlying risk portfolio.11. Also. in the case of a portfolio with a positive dependence structure.doi. CoVaR is a systemic risk measure proposed by Adrian and Brunnermeier (2011) able to measure a financial institution’s contribution to systemic risk and its contribution to the risk of other financial institutions. Several characterizations of these new risk measures are provided in terms of the copula structure and stochastic orderings of the marginal distributions.insmatheco. We show the existence of optimal indemnity schedules. Alfonso J (2015). Fourier-cosine method for Gerber-Shiu functions. Interestingly.006 (access via Athens login http://www.009 (access via Athens login http://www.org/10. DOI: http://dx. CoVaR stands for conditional Value-at-Risk. Vigilance is satisfied by a large class of risk measures.org/10. In a similar way. Ludger (2015). F. we provide a systematic study on effectively approximating the Gerber-Shiu functions.insmatheco. Yam. Valeria.01. hence covering a large collection of commonly used premium principles. Estimation procedure for the multivariate proposed CoVaRs is illustrated in simulated studies and insurance real data. DOI: http://dx. S C P Yam.005 (access via Athens login http://www. By considering some particular conditional risk distributions. Alfonso. Rüschendorf.net/) Bignozzi.1016/j. We also study. such as an unusually large loss in the portfolio or. DOI: http://dx. Fernández-Ponce. The two proposed multivariate CoVaRs are constructed from level sets of multivariate distribution functions (resp. which seems to be absent from the literature. Furthermore. DOI: http://dx. J M.openathens. including all distortion risk measures and some classes of robust risk measures. H.net/) Ghossoub.doi. In this article. we formalize.1016/j. Targino, Rodrigo S; Peters, Gareth W; Shevchenko, Pavel V (2015). Sequential Monte Carlo Samplers for capital allocation under copula-dependent risk models. [RKN: 47236] Insurance: Mathematics & Economics (2015) 61 : 206-226. In this paper we assume a multivariate risk model has been developed for a portfolio and its capital derived as a homogeneous risk measure. The Euler (or gradient) principle, then, states that the capital to be allocated to each component of the portfolio has to be calculated as an expectation conditional to a rare event, which can be challenging to evaluate in practice. We exploit the copula-dependence within the portfolio risks to design a Sequential Monte Carlo Samplers based estimate to the marginal conditional expectations involved in the problem, showing its efficiency through a series of computational examples. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.01.007 (access via Athens login http://www.openathens.net/) Schmidli, Hanspeter (2015). Extended Gerber-Shiu functions in a risk model with interest. [RKN: 47242] Insurance: Mathematics & Economics (2015) 61 : 271-275. We consider a compound Poisson risk model with interest. The Gerber-Shiu discounted penalty function is modified with an additional penalty for reaching a level above the initial capital. We show that the problem can be split into two independent problems; an original Gerber-Shiu function and a first passage problem. We also consider the case of negative interest. Finally, we apply the results to a model considered by Embrechts and Schmidli (1994) [P Embrechts, H Schmidli, Ruin estimation for a general insurance risk model, Advanced Applied Probability (1994) 26: 404-422]. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.01.012 (access via Athens login http://www.openathens.net/) Hainaut, Donatien (2015). Evaluation and default time for companies with uncertain cash flows. [RKN: 47243] Insurance: Mathematics & Economics (2015) 61 : 276-285. In this study, we propose a modelling framework for evaluating companies financed by random liabilities, such as insurance companies or commercial banks. In this approach, earnings and costs are driven by double exponential jump-diffusion processes and bankruptcy is declared when the income falls below a default threshold, which is proportional to the charges. A change of numeraire, under the Esscher risk neutral measure, is used to reduce the dimension. A closed form expression for the value of equity is obtained in terms of the expected present value operators, with and without disinvestment delay. In both cases, we determine the default threshold that maximizes the shareholder’s equity. Subsequently, the probabilities of default are obtained by inverting the Laplace transform of the bankruptcy time. In numerical applications of the proposed model, we apply a procedure for calibration based on market and accounting data to explain the behaviour of shares for two real-world examples of insurance companies. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.01.011 (access via Athens login http://www.openathens.net/) Gomes-Gonçalves, Erika; Gzyl, Henryk; Mayoral, Silvia (2015). Two maxentropic approaches to determine the probability density of compound risk losses. [RKN: 47266] Insurance: Mathematics & Economics (2015) 62 : 42-53. Here we present an application of two maxentropic procedures to determine the probability density distribution of a compound random variable describing aggregate risk, using only a finite number of empirically determined fractional moments. The two methods that we use are the Standard method of Maximum Entropy (SME) and the method of Maximum Entropy in the Mean (MEM). We analyze the performance and robustness of these two procedures in several numerical examples, in which the frequency of losses is Poisson and the individual losses are lognormal random variables. We shall verify that the reconstructions obtained pass a variety of statistical quality criteria, and provide good estimations of VaR and TVaR, which are important measures for risk management purposes. As side product of the work, we obtain a rather accurate numerical description of the density of such compound random variable. These approaches are also used to develop a procedure to determine the distribution of the individual losses from the knowledge of the total loss. Thus, if the only information available is the total loss, and the nature of the frequency of losses is known, the method of maximum entropy provides an efficient method to determine the individual losses as well. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.001 (access via Athens login http://www.openathens.net/) Willmot, Gordon E (2015). On a partial integrodifferential equation of Seal’s type. [RKN: 47267] Insurance: Mathematics & Economics (2015) 62 : 54-61. In this paper we generalize a partial integrodifferential equation satisfied by the finite time ruin probability in the classical Poisson risk model. The generalization also includes the bivariate distribution function of the time of and the deficit at ruin. We solve the partial integrodifferential equation by Laplace transforms with the help of Lagrange’s implicit function theorem. The assumption of mixed Erlang claim sizes is then shown to result in tractable computational formulas for the finite time ruin probability as well as the bivariate distribution function of the time of and the deficit at ruin. A more general partial integrodifferential equation is then briefly considered. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.004 (access via Athens login http://www.openathens.net/) Meng, Hui; Li, Shuanming; Zhou, Jin (2015). A reinsurance game between two insurance companies with nonlinear risk processes. [RKN: 47270] Insurance: Mathematics & Economics (2015) 62 : 91-97. Refer to online article for correct notation in this abstract. In this paper, we consider a stochastic differential reinsurance game between two insurance companies with nonlinear (quadratic) risk control processes. We assume that the goal of each insurance company is to maximize the exponential utility of the difference between its terminal surplus and that of its competitor at a fixed terminal time T. First, we give an explicit partition (including nine subsets) of time interval [0,T]. Further, on every subset, an explicit Nash equilibrium strategy is derived by solving a pair of Hamilton-Jacobi-Bellman equations. Finally, for some special cases, we analyze the impact of time tt and quadratic control parameter on the Nash equilibrium strategy and obtain some simple partition of [0,T]. Based on these results, we apply some numerical analysis of the time tt, quadratic control parameter and competition sensitivity parameter on the Nash equilibrium strategy and the value function. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.008 (access via Athens login http://www.openathens.net/) Chen, Yiqing; Liu, Jiajun; Liu, Fei (2015). Ruin with insurance and financial risks following the least risky FGM dependence structure. [RKN: 47271] Insurance: Mathematics & Economics (2015) 62 : 98-106. Refer to online article for correct notation in this abstract. Recently, Chen (2011) [Y Chen, The finite-time ruin probability with dependent insurance and financial risks, Journal of Applied 72 Probability 48(4) (2011), pp. 1035-1048] studied the finite-time ruin probability in a discrete-time risk model in which the insurance and financial risks form a sequence of independent and identically distributed random pairs with common bivariate Farlie-Gumbel-Morgenstern (FGM) distribution. The parameter of the FGM distribution governs the strength of dependence, with a smaller value of corresponding to a less risky situation. For the subexponential case with -1< =1, a general asymptotic formula for the finite-time ruin probability was derived. However, the derivation there is not valid for the least risky case =-1 =-1. In this paper, we complete the study by extending it to =-1 =-1. The new formulas for =-1 =-1 look very different from, but are intrinsically consistent with, the existing one for -1< =1, and they offer a quantitative understanding on how significantly the asymptotic ruin probability decreases when switches from its normal range to its negative extremum. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.007 (access via Athens login http://www.openathens.net/) Malinovskii, Vsevolod K (2015). On rational pricing for a profit-seeking insurer in the year of hard market. [RKN: 47272] Insurance: Mathematics & Economics (2015) 62 : 107-117. The aim of this paper is to examine rational pricing of a profit-seeking insurer carrying on its business when underwriting cycle is in its upper phase. We focus on migration of insureds wishing to get the same services at a lower price. We investigate pricing which maximizes the insurer’s intrinsic value linked to its attractiveness for investors, provided that its solvency position is fixed. The main tool in this paper is explicit bounds on ruin capital in Lundberg risk model with migration. Written in terms of elementary functions, they make the solution straightforward. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.003 (access via Athens login http://www.openathens.net/) Denuit, Michel; Kiriliouk, Anna; Segers, Johan (2015). Max-factor individual risk models with application to credit portfolios. [RKN: 47276] Insurance: Mathematics & Economics (2015) 62 : 162-172. Individual risk models need to capture possible correlations as failing to do so typically results in an underestimation of extreme quantiles of the aggregate loss. Such dependence modelling is particularly important for managing credit risk, for instance, where joint defaults are a major cause of concern. Often, the dependence between the individual loss occurrence indicators is driven by a small number of unobservable factors. Conditional loss probabilities are then expressed as monotone functions of linear combinations of these hidden factors. However, combining the factors in a linear way allows for some compensation between them. Such diversification effects are not always desirable and this is why the present work proposes a new model replacing linear combinations with maxima. These max-factor models give more insight into which of the factors is dominant. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.006 (access via Athens login http://www.openathens.net/) Yao, Kai; Qin, Zhongfeng (2015). A modified insurance risk process with uncertainty. [RKN: 47282] Insurance: Mathematics & Economics (2015) 62 : 227-233. An insurance risk process is traditionally considered by describing the claim process via a renewal reward process and assuming the total premium to be proportional to the time with a constant ratio. It is usually modeled as a stochastic process such as the compound Poisson process, and historical data are collected and employed to estimate the corresponding parameters of probability distributions. However, there exists the case of lack of data such as for a new insurance product. An alternative way is to estimate the parameters based on experts’ subjective belief and information. Therefore, it is necessary to employ the uncertain process to model the insurance risk process. In this paper, we propose a modified insurance risk process in which both the claim process and the premium process are assumed to be renewal reward processes with uncertain factors. Then we give the inverse uncertainty distribution of the modified process at each time. On this basis, we derive the ruin index which has an explicit expression based on given uncertainty distributions. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.03.029 (access via Athens login http://www.openathens.net/) Huang, Yi-Chieh; Tzeng, Larry Y; Zhao, Lin (2015). Comparative ambiguity aversion and downside ambiguity aversion. [RKN: 47285] Insurance: Mathematics & Economics (2015) 62 : 257-269. This paper first defines an increase in ambiguity and an increase in downside ambiguity. We then provide comparative criteria for ambiguity aversion and downside ambiguity aversion. Different from the finding that the comparative criterion for risk aversion is variant with the measure of the premium to reduce risks, we show that the criteria remain the same, whether the premiums to reduce ambiguity and downside ambiguity are measured by utility or money. Under the criteria, a more ambiguity-averse (downside-ambiguity-averse) individual is shown to spend more effort in reducing ambiguity (downside ambiguity) than a less ambiguity-averse (downside-ambiguity-averse) individual. DOI: http://dx.doi.org/10.1016/j.insmatheco.2015.04.002 (access via Athens login http://www.openathens.net/) 73 JOURNAL OF RISK AND UNCERTAINTY Cubitt, Robin P; Navarro-Martinez, Daniel; Starmer, Chris (2015). On preference imprecision. Springer, - 34 pages. [RKN: 75000] Journal of Risk and Uncertainty (2015) 50 (1) : 1-34. Recent research invokes preference imprecision to explain violations of individual decision theory. While these inquiries are suggestive, the nature and significance of such imprecision remain poorly understood. We explore three questions using a new measurement tool in an experimental investigation of imprecision in lottery valuations: Does such preference imprecision vary coherently with lottery structure? Is it stable on repeat measurement? Does it have explanatory value for economic behaviour? We find that imprecision behaves coherently, shows no tendency to change systematically with experience, is related to choice variability, but is not a main driver of the violations of standard decision theory that we consider. Byrne, Kaileigh A; Worthy, Darrell A (2015). Gender differences in reward sensitivity and information processing during decision-making. Springer, - 17 pages. [RKN: 75001] Journal of Risk and Uncertainty (2015) 50 (1) : 55-71. Gender differences in reward sensitivity and information processing were examined in two studies using a dynamic decision-making task. In Experiment 1, the optimal strategy involved forgoing an option that provided larger immediate rewards in favor of one yielding larger delayed rewards. In Experiment 2, the optimal strategy was to select the option that provided larger immediate rewards because the delayed reward option never gave larger rewards than the immediate reward option. Foregone reward information was either presented or withheld. In Experiment 1, information regarding foregone rewards biased participants toward the sub-optimal choice, whereas in Experiment 2, foregone rewards directed participants toward the optimal option. Males selected the optimal choice more in the delayed rewards task, while females were more biased toward the poorer choice by foregone reward information. In contrast, females outperformed males in the immediate rewards task. The results suggest a gender difference in information processing styles during decision-making. Lahno, Amrei M; Serra-Garcia, Marta (2015). Peer effects in risk taking: Envy or conformity?. Springer, - 23 pages. [RKN: 75003] Journal of Risk and Uncertainty (2015) 50 (1) : 73-95. We examine two explanations for peer effects in risk taking: relative payoff concerns and preferences that depend on peer choices. We vary experimentally whether individuals can condition a simple lottery choice on the lottery choice or the lottery allocation of a peer. We find that peer effects increase significantly, almost double, when peers make choices, relative to when they are allocated a lottery. In both situations, imitation is the most frequent form of peer effect. Hence, peer effects in our environment are explained by a combination of relative payoff concerns and preferences that depend on peer choices. Comparative statics analyses and structural estimation results suggest that a norm to conform to the peer may explain why peer choices matter. Our results suggest that peer choices are important in generating peer effects and hence have important implications for modeling as well as for policy. SCANDINAVIAN ACTUARIAL JOURNAL Bergel, Agnieszka I; Egídio dos Reis, Alfredo D (2015). Further developments in the Erlang(n) risk process. [RKN: 47127] Scandinavian Actuarial Journal (2015) 1 : 32-48. Available via Athens: Taylor & Francis Online For actuarial aplications, we consider the Sparre-Andersen risk model when the interclaim times are Erlang(n) distributed. We first address the problem of solving an integro-differential equation that is satisfied by the survival probability and other probabilities, and show an alternative and improved method to solve such equations to that presented by Li (2008) [Li, S. (2008). A note on the maximum severity of ruin in an Erlang(n) risk process. Bulletin of the Swiss Association of Actuaries, 167-180]. This is done by considering the roots with positive real parts of the generalized Lundberg’s equation, and establishing a one-one relation between them and the solutions of the integro-differential equation mentioned before. Afterwards, we apply our findings above in the computation of the distribution of the maximum severity of ruin. This computation depends on the non-ruin probability and on the roots of the fundamental Lundberg’s equation. We illustrate and give explicit formulae for Erlang(3) interclaim arrivals with exponentially distributed single claim amounts and Erlang(2) interclaim times with Erlang(2) claim amounts. Finally, considering an interest force, we consider the problem of calculating the expected discounted dividends prior to ruin, finding an integro-differential equation that they satisfy and solving it. Numerical examples are also provided for illustration. DOI: http://dx.doi.org/10.1080/03461238.2013.774112 (access via Athens login http://www.openathens.net/)/ Kocovic, Jelena; Cojbašic, Vesna; Jovanovic, Milan (2015). Estimating a tail of the mixture of log-normal and inverse Gaussian distribution. [RKN: 47128] Scandinavian Actuarial Journal (2015) 1 : 49-58. Available via Athens: Taylor & Francis Online In this paper, we estimate a tail of the mixture of log-normal and inverse Gaussian distribution in order to model extreme historical losses. Good estimate of the tail is essential in reinsurance for choosing or pricing high-excess layer. Method is supported by extreme value theory. We derive useful estimates of value-at-risk and expected shortfall. We apply this methodology to some fire insurance data. DOI: http://dx.doi.org/10.1080/03461238.2013.775665 (access via Athens login http://www.openathens.net/)/ Nie, Ciyu; Dickson, David C M; Li, Shuanming (2015). The finite time ruin probability in a risk model with capital injections. [RKN: 47174] Scandinavian Actuarial Journal (2015) 4 : 301-318. Available via Athens: Taylor & Francis Online We consider a risk model with capital injections. We show that in the Sparre Andersen framework the density of the time to ruin for the model with capital injections can be expressed in terms of the density of the time to ruin in an ordinary Sparre Andersen risk process. In the special case of Erlang inter-claim times and exponential claims, we show that there exists a readily computable formula for the density of the time to ruin. When the inter-claim time distribution is exponential, we obtain an explicit solution for the density of the time to ruin when the individual claim amount distribution is Erlang(2), and we explain techniques to find the moments of the time to ruin. In the final section, we consider the related problem of the distribution of the duration of negative surplus in the classical risk model, and we obtain explicit solutions for the (defective) density of the total duration of negative surplus for two individual claim amount distributions. DOI: http://dx.doi.org/10.1080/03461238.2013.823460 (access via Athens login http://www.openathens.net/)/ 74 Hashorva. Available via Athens: Taylor & Francis Online We consider two different portfolios of proportional reinsurance of the same pool of risks. We establish the tail asymptotic behavior of the total loss of each of the reinsurance portfolios and determine also the relation between randomly scaled Gaussian-like portfolios and unscaled ones.2013. the same as that of a standard Gaussian risk. [RKN: 47175] Scandinavian Actuarial Journal (2015) 4 : 319-331. Enkelejd (2015).1080/03461238. up to a multiplier.doi. DOI: http://dx.825639 (access via Athens login http://www. Further.net/)/ 75 . Julia. This contribution is concerned with Gaussian-like risks.Farkas. Tail approximation for reinsurance portfolios of Gaussian-like risks. we show that jointly two portfolios of Gaussian-like risks exhibit asymptotic independence and their weak tail dependence coefficient is nonnegative.org/10. which means that for large values the survival function of such risks is.openathens. 00pm. fax or email single copies of periodical articles and extracts from books.1959 and historical studies published subsequently. social policy. the Libraries reserve the right to restrict the availability of any service to members of the Institute and Faculty of Actuaries only. business and risk management.openathens. We offer discounts on a range of books and calculators approved for the profession’s exams.net Members are entitled to a free account. If you are planning a visit. please let us know so we can ensure someone is available to welcome you.org. ACCESS The Libraries are open to all members of the Institute and Faculty of Actuaries. 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