Financial Risk in Insurance by Hans Bühlmann (auth.), G. Ottaviani (eds.)

By Hans Bühlmann (auth.), G. Ottaviani (eds.)

This ebook, released with the contribution of the Italian coverage corporation INA, includes the invited contributions awarded on the third overseas AFIR Colloquium, held in Rome in 1993. The colloquium was once geared toward encouraging study at the theoretical bases of actuarial sciences, its interplay with the speculation of finance and of company finance, including mathematical equipment, corresponding to likelihood and the speculation of stochastic methods. within the spirit of actuarial culture, consciousness used to be given to the hyperlink among the theoretical process and the operative difficulties of monetary markets and associations, and insurance firms specifically. The publication is a crucial reference paintings for college kids and researchers of actuarial sciences and finance. it could possibly even be urged to practitioners with theoretical interests.

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In the second stage the the estimated parameters from the first stage and the observed prices of bonds with different maturities are combined to estimate the preference dependent parameter 1f. With the cross-section method, proposed by Brown and Dybvig (1986), the current value of r(t) and the risk-adjusted parameters of the model, a - 1f, a ~( and p are simultaneously estimated using cross-sections of prices. Precisely, for a single day, the market prices of fixed rate bonds are observed and the estimated parameters are these producing the best least squares fit of model prices to observed market prices.

4 lire (for 100 lire face value). One possible explanation of this mispricing could be obtained by taking into account fiscal effects. In the estimation procedure we applied the model by considering the bond cash-flows net of the witholding tax. However different tax brackets can be identified on the Italian bond market. Adopting a simplifying view, we can refer to two different fiscal classes: tax-exempt and tax-payers investors. Owing to the indexation mechanism of CCTs, holding an indexed coupon could give a tax-exempt agent the possibility to invest at the pretax future market rate.

In the second stage the the estimated parameters from the first stage and the observed prices of bonds with different maturities are combined to estimate the preference dependent parameter 1f. With the cross-section method, proposed by Brown and Dybvig (1986), the current value of r(t) and the risk-adjusted parameters of the model, a - 1f, a ~( and p are simultaneously estimated using cross-sections of prices. Precisely, for a single day, the market prices of fixed rate bonds are observed and the estimated parameters are these producing the best least squares fit of model prices to observed market prices.

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