Description: Sometimes, rare things happen and the least expected occurs. Indeed, some events occur once or twice in a lifetime leaving little room to learn from experiences. In financial markets, extreme events, no matter how rare, could have a profound impact on a company or even the whole country. Insurers are also not free from the impact of catastrophic large-scale extreme events. As a result, with pervasive economic and financial revolutions sweeping our world and potential devastative catastrophes, the increasing interest in tail risk management is fuelled by practical issues, including investment downside risk and insurance catastrophe risk. Thus, developing statistical techniques to model extreme investment and insurance losses is certainly a major task for risk managers. the purpose of our paper is to apply moment methods to estimate the joint events such as concurrent extreme investment loss and insurance loss. A novel aspect of this article is that it takes into account the correlation between different assets and insurance lines of business.

Description: This paper employs the theory of real option pricing to address problems in the area of operational risk management. Particularly, it develops a two-stage model to help firms determine the optimal triggers in the event of an influenza pandemic. The first stage proposes a regime-dependent epidemic model to simulate the spread of the virus, depending on whether the firm is active or inactive. The second stage views the reactivation decision as a call option and the suspension decision as a put option, and uses dynamic programming method to determine the optimal switching thresholds.

Description: This paper examines the pricing of catastrophe risk bonds. Catastrophe risk cannot be hedged by traditional securities. Therefore the pricing of catastrophe risk bonds requires an incomplete markets setting and this creates special difficulties in the pricing methodology. The paper briefly discusses the theory of equilibrium pricing and its relationship to the standard arbitrage-free valuation framework. Equilibrium pricing theory is used to develop a pricing method based on a model of the term structure of interest rates and a probability structure for the catastrophe risk. This pricing methodology can be used to assess the default spread on catastrophe risk bonds relative to traditional defaultable securities.

Description: This is a final report to estimate the total economic cost of obesity. This study looks at the economic costs of obesity caused by increased need for medical care, and loss of economic productivity resulting from excess mortality and disability. The Society of Actuaries breaks out the economic cost of overweight versus obesity for the U.S. and for Canada.

Description: This paper presents best upper and lower bounds on the expected value of an insurance payment under the terms of a contract written on a random loss with known moments. From Transactions of Society of Actuaries 1991, Vol. 43.

Description: This paper presents best upper and lower bounds on the expected value of a reinsurance payment under the terms of a contract written on a random loss with known moments. Bounds on the expected exercise value of a financial option are considered also because the mathematical model used for valuing options is similar to that used in reinsurance net premium calculations. From the Actuarial Research Clearing House ARCH 1990 Vol. 1.

Description: In his original monograph on portfolio selection, Markowitz [1952] discusses the tradeoff between the mean and variance of a portfolio. Since then, especially recently, much attention has been focused on asymmetric distributions to minimize risks with given return goal for investors who have special skewness preferences. To address this issue, this paper extends Krokhmal et al. [2002]’s approach by adding CVaR-like constraints to the traditional portfolio optimization problem. The CVaR optimization technique has the advantage of reshaping either the left or right tail of a distribution while not significantly affecting the other. Specifically, this approach is used to manage the skewness of asset-liability portfolios of financial institutions. In addition, the CVaR-like constraints approach is compared with traditional Markowitz method and some other alternatives such as, the CVaR approach [directly optimize CVaR], the Boyle-Ding approach as well as the mean-absolute deviation [MAD] approach. Numerical analysis provides empirical support for the superiority of CVaR-like constraints approach in terms of skewness improvement of mean-variance portfolios.

Description: We devise an approach, using tobit models for modeling annuity lapse rates. The approach is based on data provided by the Society of Actuaries’ Risk Management Task Force. Kim [2005a] models annuity lapse rates using a logit model and the same US data (he also used Korean data separately). We find that the tobit model is a more than suitable approach for all levels of the explanatory variables including interest rates, unemployment rates, and GDP growth rates. Specifically, policyholder behavior in the tail of the distribution of lapse rates is explained as well as it is in the normal range of lapse rates.

Description: This SOA study covers the economic costs of overweight and obesity caused by increased need for medical care, and loss of economic productivity resulting from excess mortality and disability in the US and Canada. It includes and examination of the prevalence of obesity and the trends, and the effect of obesity on medical conditions.

Description: Shows how to use personal information such as medical history, family characteristics, etc. in a logical statistical fashion for the purpose of modifying an existing mortality table to reflect the collected underwriting information.