The study reveals unspanned risks in equity option risk premiums, explaining negative premiums for certain options.
problem Explaining negative risk premiums for certain equity option types.
method Developed a decomposition of equity option risk premiums, operationalized the pricing kernel process, and incorporated unspanned risks.
result Empirical evidence supports the presence of unspanned risks, explaining negative risk premiums for certain options.
The paper is motivated by a problem concerning the monotonicity of insurance premiums with respect to their loading parameter: the larger the parameter, the larger the insurance premium is expected to be. This property, usually called loading monotonicity, is satisfied by premiums that appear in the literature. The inc…
Examines US equity risk premiums amid COVID-19.
problem Analyzing equity risk premiums during the pandemic.
method Not specified in the abstract.
result Not specified in the abstract.
A new insurance and reinsurance pricing scheme based on realized loss.
problem Determining fair and risk-adjusted insurance premiums.
method Performance-based variable premium scheme with random initial premium adjusted based on realized loss.
result The variable premium scheme reduces reinsurer's total risk exposure compared to expected-value premium.
The risk premium of a policy is the sum of the pure premium and the risk loading. In the classification ratemaking process, generalized linear models are usually used to calculate pure premiums, and various premium principles are applied to derive the risk loadings. No matter which premium principle is used, some risk …
The net-premium principle is considered to be the most genuine and fair premium principle in actuarial applications. However, an insurance company, applying the net-premium principle, goes bankrupt with probability one in the long run, even if the company covers its entire costs by collecting the respective fees from i…
A new method to break down insurance costs into risk and uncertainty.
problem Understanding and quantifying insurance costs in uncertain environments.
method An axiomatic approach to decompose premium principles into risk and deviation measures.
result Maximal risk and minimal deviation measures can be uniquely identified in decompositions.
We present in this paper a new premium computation principle based on the use of prior information from multiple sources for computing the premium charged to a policyholder. Under this framework, based on the use of Ordered Weighted Averaging (OWA) operators, we propose alternative collective and Bayes premiums and des…
We determine the optimal amount of life insurance for a household of two wage earners. We consider the simple case of exponential utility, thereby removing wealth as a factor in buying life insurance, while retaining the relationship among life insurance, income, and the probability of dying and thus losing that income…
We consider the concept of equilibrium in economic systems from statistical mechanics viewpoint. A new method is suggested for computing the premium on this basis. The Bühlmann economic premium principle is derived as a special case of our method.
Proposes a fix for IRS calculation of Obamacare tax credits.
problem IRS iteration leads to divergent sequences for some self-employed taxpayers.
method Introduces a bisection procedure to calculate premium tax credits.
result Bisection procedure works for simple tax returns and those receiving credits in advance.
Derives a size premium from automated market makers in decentralized AI subnets.
problem Determining the profitability and risk of decentralized AI subnets.
method Analyzes daily data on 128 subnets, tests the size premium, and calculates transaction costs.
result The size premium is reduced by a halving of token emissions but remains profitable only below a certain asset threshold.
Endogenous reinsurance pricing in large insurance markets
problem Endogenous reinsurance pricing in large insurance markets
method Stackelberg leader and insurer equilibrium analysis
result Characterization of insurers' equilibrium retention and Stackelberg equilibria
Introduces an unobservable intrinsic electricity price to link storage theory with risk premium.
problem Connecting storage theory with risk premium in electricity markets.
method Introduces an unobservable intrinsic electricity price and derives prices for various contracts.
result Finds an overall negative risk premium in empirical analysis.
We investigate, focusing on the ruin probability, an adaptation of the Cramer-Lundberg model for the surplus process of an insurance company, in which, conditionally on their intensities, the two mixed Poisson processes governing the arrival times of the premiums and of the claims respectively, are independent. Such a …
New model solves equity premium puzzle with risk aversion coefficient.
problem Equity premium puzzle in financial markets.
method Developed a new model incorporating investor risk behavior, tested with specific coefficients.
result Validated model with empirical studies, confirming coefficient of 1.033526.
SPAC data shows premium investors get better terms, non-premium get quid pro quo deals.
problem Agency problems and informational frictions in securities issuance.
method Analysis of SPAC data to identify premium and non-premium investors.
result Non-premium investors engage in quid pro quo relationships with issuers and intermediaries.
We present an analytical study of an insurance company. We model the company's performance on a statistical basis and evaluate the predicted annual income of the company in terms of insurance parameters namely the premium, total number of the insured, average loss claims etc. We restrict ourselves to a single insurance…
Analyzes premium data of Indian non-life insurers, finding GEV distribution best fits Lognormal and GEV extremes.
problem Modeling premiums of non-life insurance companies in India.
method Empirical analysis using Lognormal, GEV, and GPD distributions.
result Generalized Extreme Value distribution best fits premium data for ten Indian non-life insurers.
New model solves equity premium puzzle.
problem Equity premium puzzle regarding risk behavior of investors.
method Developed a new tool called the sufficiency factor to analyze risk behavior of investors.
result Validated the new model with a coefficient of relative risk aversion of 1.033526.
Paper finds significant impact of stock market swings on equity risk premium predictability.
problem Predicting equity risk premium based on stock market behavior changes.
method Introduced Bullish Index and used FDMAA for returns analysis; considered 28 indicators.
result Positive shocks in Bullish Index correlate with strong equity risk premium predictability for up to six months, while negative shocks correlate for up to nine months.
The study finds no evidence of stochastic arbitrage opportunities in S&P 500 index options.
problem Identifying arbitrage opportunities in S&P 500 index options.
method Developed linear and mixed-integer linear programs to compute the maximum option premium.
result No evidence of systematic stochastic arbitrage opportunities in S&P 500 index options.
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches for estimating the equity risk premium. The first is survey based, it consists in …
The aim of this contribution is to derive a general matrix formula for the net period premium paid in more than one state. For this purpose we propose to combine actuarial technics with the graph optimization methodology. The obtained result is useful for example to more advanced models of dread disease insurances allo…
Limited liability creates a conflict of interests between policyholders and shareholders of insurance companies. It provides shareholders with incentives to increase the risk of the insurer's assets and liabilities which, in turn, might reduce the value policyholders attach to and premiums they are willing to pay for i…
We model the quantities appearing in Internal Revenue Service (IRS) tax guidance for calculating the health insurance premium tax credit created by the Patient Protection and Affordable Care Act, also called Obamacare. We ask the question of whether there is a procedure, computable by hand, which can calculate the appr…
Study finds carbon emissions affect stock value, but not bought emissions.
problem Determining if carbon emissions impact stock value and whether this is due to direct or indirect emissions.
method Fixed-effects analysis with propensity score weighting to control for selection bias.
result Firms with higher Scope 1 emissions have a statistically significant positive carbon premium, but Scope 2 emissions do not.
Optimal insurance strategy for maximizing RDEU under various premium principles.
problem Maximizing a risk-averse individual's RDEU with insurance priced by a distortion-deviation principle.
method Proved necessary and sufficient conditions for the optimal solution, considered ambiguity orders, and analyzed specific examples.
result Conditions for no insurance or deductible insurance to be optimal.
The paper models exchange rate risk premium using mean-reverting dynamics.
problem Empirical failure of uncovered interest parity (UIP).
method Modeling risk premium using Ornstein-Uhlenbeck (OU) process embedded in stochastic differential equation for exchange rate.
result The model shows strong predictive performance at short and long horizons, but underperforms at intermediate horizons.
In this paper, we consider the problem of optimal reinsurance design, when the risk is measured by a distortion risk measure and the premium is given by a distortion risk premium. First, we show how the optimal reinsurance design for the ceding company, the reinsurance company and the social planner can be formulated i…
Study optimal reinsurance contracts to prevent moral hazard under non-concave premium principles.
problem Preventing moral hazard in reinsurance contracts under non-concave premium principles.
method Develops optimal reinsurance contracts under a diffusion risk model with incentive compatibility constraints and extended distortion premium principles.
result An optimal reinsurance contract exists and is characterized by solving a double obstacle problem.
New concept of attitude towards probability introduced in risk sharing problems.
problem Risk sharing problems and attitudes towards probability.
method Generalized definition of probability premium, local approximation, rank-dependent utility model, dual theory.
result Attitude towards probability can be first-order or second-order, depending on the model.
Optimal insurance policy for exponential utility maximization with convex premium calculation.
problem Maximizing terminal wealth utility with exponential utility function and convex premium formula.
method Necessary condition for optimal indemnity, numerical algorithm to compute it, convergence proof.
result Numerical algorithm converges to unique optimal indemnity.
Study investigates ruin probability with random premiums and risky investments.
problem Ruin probability with random premiums and risky investments.
method Laplace transform applied to a model with geometric Brownian motion.
result Asymptotic behavior of ruin probability for large initial capital values.
The study uses equity order flow to forecast stock returns and resolves the liquidity premium puzzle.
problem The liquidity premium and its relation to investment horizons.
method Directly estimated Kyle's price-impact coefficient λ from daily equity order flow data.
result Signed order flow predicts stock returns, with volume volatility predicting lower returns.
Paper analyzes strategic underreporting in competitive insurance markets.
problem Strategic underreporting by insureds in competitive insurance markets.
method Develops a dynamic insurance market model with two competing companies and a continuum of insureds, examines the interaction between strategic underreporting and competitive pricing under a Bonus-Malus System framework.
result Establishes the existence and uniqueness of the insureds' optimal reporting barrier and its dependence on BMS premiums; proves the existence of Nash equilibrium premium strategies.
We consider the insurance company as a physical system which is immersed in its environment (the financial market). The insurer company interacts with the market by exchanging the money through the payments for loss claims and receiving the premium. Here in the equilibrium state we obtain the premium by using the canon…
Study analyzes AI's impact on firms, markets, and workers using large language model data.
problem Understanding AI's effect on firms, markets, and workers.
method Used 380 trillion tokens from 400+ large language models to analyze AI's impact.
result Firms with higher AI exposure earn higher returns, creating an AI premium.
The risk premium is one of main concepts in mathematical finance. It is a measure of the trade-offs investors make between return and risk and is defined by the excess return relative to the risk-free interest rate that is earned from an asset per one unit of risk. The purpose of this article is to determine upper and …
The study analyzes how bonus-malus systems and delayed claims settlement affect insurance companies' financial stability.
problem Analyzing the impact of bonus-malus systems and delayed claims settlement on insurance companies' financial stability.
method Examined a discrete-time risk model with time-varying premiums, evaluating two types of claims and settlement delays.
result Delayed settlement of by-claims leads to lower ruin probabilities under specific assumptions.
This paper concerns the dual risk model, dual to the risk model for insurance applications, where premiums are surplus-dependent. In such a model premiums are regarded as costs, while claims refer to profits. We calculate the mean of the cumulative discounted dividends paid until ruin, if the barrier strategy is applie…
Study finds farmers are willing to pay higher premiums for higher coverage in agricultural insurance.
problem Determining the demand factors and WTP for agricultural insurance.
method Conducted a survey of 200 farmers to analyze the impact of socio-demographic variables and premium on insurance purchase decisions.
result Farmers are willing to pay higher premiums for higher coverage in agricultural insurance.
New model for options pricing accounting for time-varying interest rates, volatility, and equity premium.
problem Inaccuracies in Black-Scholes-Merton model for real market conditions.
method Integrates stochastic variance, interest rates, and equity premium into a PDE framework.
result Derives new PDEs and approximates option prices using finite difference methods.
The paper examines how risk reduction and insurance choices interact under convex premium principles.
problem Interaction between self-protection and insurance demand under convex premium principles.
method Investigates optimal prevention efforts and insurance shares using distortion risk measures.
result Self-protection and insurance are complementary, but ex ante moral hazard can turn this into a substitution effect.
The study introduces new liquidity measures and models for assets with extreme liquidity.
problem Modeling assets with extreme liquidity, especially in crypto markets.
method Developed innovative liquidity premium measures, liquidity-adjusted return and volatility models, and used ARMA-GARCH/EGARCH models.
result The liquidity-adjusted models outperform traditional models in predicting asset performance at extreme liquidity.
We construct the term structure of the (forward-looking, US market) equity risk premium from SPX option chains. The method is "model-light". Risk-neutral probability densities are estimated by fitting N-component Gaussian mixture models to option quotes, where N is a small integer (here 4 or 5). These densities are…
SHHK Stock Connect increases A-H share price premium, more for less efficient markets.
problem Impact of financial liberalization on cross-market pricing efficiency.
method Monthly data for 67 A-H dual-listed firms, system GMM dynamic models.
result Heterogeneous effect of SHHK Stock Connect on A-H price premium, more pronounced for less efficient markets.
Study examines risk premium convergence rates in risk sharing contracts.
problem Analyzing risk premium convergence rates in risk sharing contracts.
method Examines the limiting behavior of risk premium associated with Pareto optimal risk sharing contracts under general law-invariant risk measures.
result Risk premium convergence rate is typically n1/2, not n.