Mathematical and Statistical Methods for Actuarial Sciences and Finance - MAF 2018

Preface

Contents

About the Editors

The Effect of Rating Contingent Guidelines and Regulation Around Credit Rating News

1 Introduction

2 Rating-Based Investment Guidelines

3 Data and Analysis Implementation

4 Results

5 Concluding Remarks

References

Practical Problems with Tests of Cointegration Rank with Strong Persistence and Heavy-Tailed Errors

1 Introduction

2 Power of Tests in the Heteroskedastic VAR Model with Heavy-Tailed Errors

3 Empirical Results

4 Conclusions

References

Inference in a Non-Homogeneous Vasicek Type Model

1 Introduction and Background

2 The Model

3 Fitting the Model

4 A Simulation Study

References

Small Sample Analysis in Diffusion Processes: A Simulation Study

1 Introduction

2 ML Estimation and Bootstrap Correction

3 Simulation Experiment and Results

References

Using Deepest Dependency Paths to Enhance Life ExpectancyEstimation

1 Introduction

2 Methodology

3 Results

References

The Optimal Investment and Consumption for Financial Markets Generated by the Spread of Risky Assets for the Power Utility

1 Market Model

2 Stochastic Programming Method

3 Main Results

References

Combining Multivariate Volatility Models

1 Introduction

2 MCS Combination Strategy

3 Empirical Analysis

References

Automatic Detection and Imputation of Outliers in Electricity Price Time Series

1 Introduction

2 Time Series Outlier Detection and Imputation

3 Results and Discussion

References

Bayesian Factorization Machines for Risk Management and Robust Decision Making

1 Introduction

2 Prediction

3 Multiobjective Optimization

References

Improving Lee-Carter Forecasting: Methodology and Some Results

1 Introduction and Literature

2 Mathematical Framework and Empirical Methodology

3 Graphical Assessment of the Predictive Accuracy of the ``mLC'' Model

4 Concluding Remarks

References

The Bank Tailored Integrated Rating

1 Motivation and Methodology

2 Stylized Mathematical Approach

3 Summaries and Future Developments

Appendix

References

A Single Factor Model for Constructing Dynamic Life Tables

1 Single Factor Model

1.1 Adjusting a Sensitivity Function to bx,x*

1.2 Forecasting Mortality Rates

2 Lee-Carter (1992) Model

3 Comparison Between the Single Factor Model and the Lee-Carter Model

References

Variable Annuities with State-Dependent Fees

1 Introduction

2 The Structure of the Contract

3 Valuation Framework

3.1 The Static Approach

3.2 The Mixed Approach

4 Numerical Implementation

References

Dynamic Policyholder Behavior and Surrender Option Evaluation for Life Insurance

1 Introduction

2 A Model for the Lapse Rate Estimation According to Policyholder Behavior

2.1 Step 1

2.2 Step 2

3 Some Numerical Results

References

Classification Ratemaking via Quantile Regression and a Comparison with Generalized Linear Models

1 Introduction

2 A Quantile Premium Principle Based on a Two-Part Model

2.1 The Two Part Model for the Individual Risk Model

2.2 A Quantile Premium Principle Based on a Two-Part Model

3 Simulation Study

References

An Empirical Analysis of the Lead Lag Relationship Between CDS and Stock Market

1 Introduction

2 Data and Methodology

3 Results

4 Conclusions

References

Integration of Non-financial Criteria in Equity Investment

1 Introduction

2 Including Non-financial Criteria

3 Constrained Tracking Error Approach

4 Conclusion

References

A Generalized Moving Average Convergence/Divergence for Testing Semi-strong Market Efficiency

1 Introduction

2 The Proposed Indicator

3 Nonparametric Bootstrap Test

3.1 Simulations

4 Empirical Test Results

References

Periodic Autoregressive Models with Multiple Structural Changes by Genetic Algorithms

1 Model Description and Estimation

2 Application and Conclusions

References

Mortality Projection Using Bayesian Model Averaging

1 Introduction

2 The Bayesian Model Averaging (BMA)

3 Mortality Projection Applying BMA

4 Final Remarks

References

Robust Time-Varying Undirected Graphs

1 Introduction

2 Methodology

3 Algorithm

4 Simulation Study

References

Two-Sided Skew and Shape Dynamic Conditional Score Models

1 Introduction

2 Two-Sided Skew and Shape Distribution

3 2SSS Dynamic Conditional Score Model

References

Sparse Networks Through Regularised Regressions

1 Introduction

2 The Model

2.1 Spike-and-Slab EM

3 Application to Network Analysis

References

Approximate EM Algorithm for Sparse Estimation of Multivariate Location–Scale Mixture of Normals

1 Introduction

2 Multivariate Model Specifications

3 Parameters Estimation via FFT–EM Algorithm

4 Portfolio Application

References

An Extension of Multidimensional Scaling to Several Distance Matrices, and Its Application to the Italian Banking Sector

1 Introduction

2 Method

3 Analysis

References

Disagreement in Signed Financial Networks

1 Introduction

2 Disagreement in Unsigned Directed Network

3 The Lifted Dynamics and Disagreement in Signed Networks

References

Bayesian Tensor Binary Regression

1 Bayesian Markov Switching Binary Tensor Regression Model

2 Bayesian Inference

3 Simulation and Application

4 Conclusions

References

Bayesian Tensor Regression Models

1 Bayesian Tensor Regression Model

2 Bayesian Inference

3 Simulation and Application

4 Conclusions

References

Bayesian Nonparametric Sparse Vector Autoregressive Models

1 Introduction

2 The Vector Autoregressive model

3 Bayesian Nonparametric Sparse VAR

4 Simulation Results

5 Conclusions

References

Logistic Classification for New Policyholders Taking into Account Prediction Error

1 Introduction

2 Mean Squared Error for New Observations

3 Application: Credit Scoring

References

Conditional Quantile-Located VaR

1 Methods

2 Empirical Results

References

Probability of Default Modeling: A Machine Learning Approach

1 Introduction

2 Methodology

2.1 Data Used

2.2 Main Results

3 Conclusion

References

Risk/Return Analysis on Credit Exposure: Do Small Banks Really Apply a Pricing Risk-Based on Their Loans?

1 Introduction

2 Methodology

2.1 Data Used

2.2 Results

3 Conclusion

References

Life Insurers' Asset-Liability Dependency and Low-Interest Rate Environment

1 Introduction

2 Data and Methodology

3 Empirical Results

4 Conclusions

References

Modelling the Australian Electricity Spot Prices: A VAR-BEKK Approach

1 Introduction and Motivation

2 Methods and Results

References

Cyber Risk Management: A New Challenge for ActuarialMathematics

1 Introduction

2 Peculiarities of Cyber Insurance

2.1 Some Recent Results in Economic and Actuarial Literature

3 Information Technology for Cyber Insurance

References

Predicting the Volatility of Cryptocurrency Time-Series

1 The Volatility of Cryptocurrencies

2 Forecast Analysis and Model Comparison

3 Conclusion

References

A Generalized Error Distribution-Based Method for Conditional Value-at-Risk Evaluation

1 Introduction

2 The Generalized Error Distribution and the G.E.D. Copula

3 The Methodology

4 Conclusions

References

Risk-Return Optimization for Life Insurance Portfolios

1 Introduction: The Life Insurance Matching Strategy and Movements of the Term Structure

2 Passive Strategy: Minimizing the “Immunization Risk”

3 Active Strategy: The Risk-Return Tradeoff Optimization

4 Conclusions and Further Developments

References

When Is Utilitarian Welfare Higher Under Insurance Risk Pooling?

1 Outline of Our Approach

2 Model Set-Up

2.1 Insurance Demand from the Individual Viewpoint

2.2 Insurance Demand from the Insurer's Viewpoint

2.3 Market Equilibrium and Social Welfare

3 Results for Iso-Elastic Demand

4 Discussion

References

The Value of Information for Optimal Portfolio Management

1 Introduction

2 The Model

3 The Full Information Case

4 The Partial Information Case

5 Conclusion

References

Risk and Uncertainty for Flexible Retirement Schemes

1 Motivation

2 The Italian Mortality Experience

3 Dealing with Model Uncertainty

4 A Flexible Retirement Scheme

5 Conclusion and Further Developments

References

Comparing Possibilistic Portfolios to Probabilistic Ones

1 Introduction

2 The Theoretical Comparison

3 The Empirical Comparison

References

Some Critical Insights on the Unbiased Efficient Frontier à la Bodnar&Bodnar

1 Introduction

2 Unbiased Estimator of the Efficient Frontier

3 Our Main Results

3.1 The Asymptotic Behavior of the Biased Estimator

3.2 The ``Strange'' Behavior of the Unbiased Estimator

3.3 The Operational Effectiveness of the Unbiased Estimator

References

Numerical Solution of the Regularized Portfolio Selection Problem

1 Introduction

2 Regularized Portfolio Selection Model

3 Bregman Iteration for Portfolio Selection

References

Forecasting the Equity Risk Premium in the European MonetaryUnion

1 Introduction

2 In-Sample Analysis

3 Out-of-Sample Analysis

4 Asset Allocation

5 Summary of Most Important Results

References

Statistical Learning Algorithms to Forecast the Equity Risk Premium in the European Union

1 Introduction

2 Methodology

2.1 CART Models

2.2 Ensemble Models

3 The Model

3.1 The Data

3.2 Out-of-Sample Predictions

4 Results

References

Evaluating Variable Annuities with GMWB When Exogenous Factors Influence the Policy-Holder Withdrawals

1 The Framework

2 The Evaluation Model

3 Numerical Results

Reference

A Continuous Time Model for Bitcoin Price Dynamics

1 Introduction

2 The Model

3 Risk Neutral Measure and Option Pricing

4 A Numerical Example

References

Forecasting the Volatility of Electricity Prices by Robust Estimation: An Application to the Italian Market

1 Introduction

2 A Robust SETAR Model for Electricity Prices

3 Robust Volatility Estimation Through the Forward Search

References

``Money Purchase'' Pensions: Contract Proposals and Risk Analysis

1 Personal Pension Products

2 Variable Annuities with Participating Benefits: Notations and Recalls

3 The Demographic Risk Filters

References

What If Two Different Interest Rates Datasets Allow for Describing the Same Financial Product?

1 Introduction

2 Discrepancies in the Datasets: Impact on the Volatility Term Structure and on the Interest Rate Projections

3 Pricing Derivatives: Two Applicative Cases

References

An Integrated Approach to Explore the Complexity of Interest Rates Network Structure

1 Introduction

2 Mathematical Background

2.1 Quantile Regression

3 A Practical Application

4 Conclusion

References

Estimating Regulatory Capital Requirements for Reverse Mortgages: An International Comparison

1 Paper Summary

References

A Basic Social Pension for Everyone?

1 Introduction

2 One Basic Social Pension and One Funding Model

3 Application

4 Conclusions

References

A Copula-Based Quantile Model

1 Introduction

2 Modelling and Data

3 Conclusions

References

International Longevity Risk Pooling

1 Motivation and Related Literature

2 Pooling Metrics and Impact

3 Conclusions

References

A Two-Steps Mixed Pension System: An Aggregate Analysis

1 Introduction

2 The Two-Steps Mixed System

3 Aggregate Perspective

4 Concluding Comments on Transition Possibilities

References

The Influence of Dynamic Risk Aversion in the Optimal PortfolioContext

1 Introduction

2 Main Results and Findings: The Certainty-Equivalent

References

Socially Responsible Investment, Should You Bother?

1 Introduction

2 Relationship Between Socially Responsible Performance and Financial Performance

3 Portfolios Composition and Data Sample

4 Empirical Analysis

5 Conclusion

References

Measuring Financial Risk Co-movement in Commodity Markets

1 Introduction

2 Methodology

2.1 Selecting a Downside Risk Measure

2.2 Constructing Financial Downside Risk Maps with MDS

3 Main Results

4 Conclusions

References

Helping Long Term Care Coverage via Differential on Mortality?

1 Long Term Care as a Coverage

2 Differential on Mortality

3 An Application to Spain

4 Conclusions

References

Tuning a Deep Learning Network for Solvency II: Preliminary Results

1 Introduction

2 Numerical Set-Up

3 Results

References

Exploratory Projection Pursuit for Multivariate Financial Data

1 Introduction

2 Results

References

The Rearrangement Algorithm of Puccetti and Rüschendorf: Proving the Convergence

1 Introduction

2 The Rearrangement Algorithm

3 Proof of Convergence

References

Automatic Balancing Mechanisms in Practice: What Lessons for Pension Policy Makers?

1 Introduction

2 The US Social Security Fiscal Cliff: Automatic and Rough Adjustment Through Pension Benefits

3 The Swedish NDC Experiment: Reinforcing Automatic Adjustment Mechanisms by Introducing an Explicit ABM

4 Canada's Second Pillar: An Automatic Adjustment Through Contribution Scattered by the Absence of Political Choice

References

Empirical Evidence from the Three-Way LC Model

1 Introduction

2 The Three-Way Lee-Carter Model

3 The Analysis and Interpretation of the 3-Way LC Model

4 The Advantage of Introducing a Third Way in the Analysis

5 The Factorial Representations

References

Variable Selection in Estimating Bank Default

1 Introduction

2 Statistical Model

3 Screening for High Dimensional GEV Models

References

Multiple Testing for Different Structures of Spatial Dynamic Panel Data Models

1 The SDPD Models

2 A Strategy for Testing the Particular Structure of SDPD Models

3 Bootstrap Scheme for the Multiple Testing Procedure

References

Loss Data Analysis with Maximum Entropy

1 Introduction

2 The Standard Method of Maximum Entropy (SME)

3 Examples

3.1 Notes and Comments

Reference

Real-World Versus Risk-Neutral Measures in the Estimation of an Interest Rate Model with Stochastic Volatility

1 Introduction

2 The Valuation Model

3 Results and Approximations

4 Empirical Application

References

Extensions of Fama and French Models

1 Introduction and Methodology

1.1 Aim

1.2 Methodology

2 Main Results and Concluding Remarks

References

The Islamic Financial Industry: Performance of Islamic vs. Conventional Sector Portfolios

1 Introduction

2 Performance

3 Main Results and Concluding Remarks

References

Do Google Trends Help to Forecast Sovereign Risk in Europe?

1 Introduction

2 Background Literature

3 Data

4 Results

5 Conclusions

References

The Contribution of Usage-Based Data Analytics to Benchmark Semi-autonomous Vehicle Insurance

1 Introduction

2 Data and Methods

3 Speed Reduction and Safety

4 Conclusions

References

Some Empirical Evidence on the Need of More Advanced Approaches in Mortality Modeling

1 Mortality Models Based on Legendre Polynomials

2 Empirical Investigation

References

Could Machine Learning Predict the Conversion in Motor Business?

1 Introduction

2 Description of the Data Set

3 Machine Learning Models

3.1 Generalized Linear Model (GLM)

3.2 Classification and Regression Tree (CART)

3.3 Random Forest (RF)

3.4 Gradient Boosted Tree (BOOST)

4 Models Calibration

5 Analysis of Results

References

European Insurers: Interest Rate Risk Management

1 Introduction and Methodology

1.1 Aim

1.2 Data and Methodology

2 Main Results and Concluding Remarks

References

Estimation and Prediction for the Modulated Power Law Process

1 Introduction

2 Estimation of the MPLP Parameters

3 Prediction of the Next Failure Time

4 Application to Some Real Data Set

References

The Level of Mortality in Insured Populations

1 Introduction

2 Mortality: Current and Future. Solvency II and IFRS 17

3 Methodology and Data

4 Results and Conclusions

References

Kurtosis Maximization for Outlier Detection in GARCH Models

1 Introduction

2 Main Result

References

Google Searches for Portfolio Management: A Risk and ReturnAnalysis

1 Introduction

2 Google Trends

3 Asset Allocation Based on Google Search Volumes

References

The Challenges of Wealth and Its Intergenerational Transmission in an Aging Society

1 Introduction

2 A Present Wealth Situation Which Is Both Massive and Noxious

3 `Patrimonialization' Due to Rising Longevity and Other Changes

4 Possible Tax or Social Remedies: The Taxfinh Program

References

Bivariate Functional Archetypoid Analysis: An Application to Financial Time Series

1 Introduction

2 Data

3 Methodology

3.1 AA and ADA for (Standard) Multivariate Data

3.2 AA and ADA for Functional Data

4 Results

5 Conclusions

References

A Note on the Shape of the Probability Weighting Function

1 Introduction

2 An Application to Premium Calculation

References

Disability Pensions in Spain: A Factor to Compensate Lifetime Losses

1 Pension Systems: The Case of Spain

2 The Main Component of Spanish Pensions: Public Non-means-tested Benefit

3 Underlying Differences Between the Beneficiaries of a Regular Pension and the Beneficiaries of a Disability Pension

4 A Simple Actualisation Factor to Compensate Differences Between the Beneficiaries of a Regular Pension and the Beneficiaries of a Disability Pension

References

A Minimum Pension for Older People via Expenses Rate

1 Introduction

2 Long Term Care Problem: Consume Paths

3 An Application to Spain

4 Conclusion

References

A Comparative Analysis of Neuro Fuzzy Inference Systems for Mortality Prediction

1 Introduction

2 Adaptive Neuro Fuzzy Systems

3 The Lee Carter Model

4 Application to Mortality Dataset

5 Conclusions

References

Financial Networks and Mechanisms of Business Capture in Southern Italy over the First Global Wave (1812–1913): A Network Analysis Approach

1 Introduction

2 The South of Italy in the 1st Global Wave: Context and Data

3 The Evolution of the Role of the Economic Actors in Naples: A Network Approach

4 A First Discussion

References

Modeling High-Frequency Price Data with Bounded-Delay Hawkes Processes

1 Introduction

2 Beta Delay Hawkes Model

3 Experiments

4 Conclusion

References

Pricing Illiquid Assets by Entropy Maximization Through Linear Goal Programming

1 Introduction

2 Notations and Preliminaries

3 The Goal Programming Method

4 Conclusions

References