Description: This paper argues that the self-financing axiom with mild assumptions on the conditional expected returns yields a market with an eventual arbitrage. This is accomplished by minimizing the conditional variance of a trade when the conditional expectation is a fixed constant. Examples with common processes shows that most models yield an eventual arbitrage. As a final application, a cost model is applied to prices of stripped coupon and principal payments on U.S. government bonds, where rates of return are estimated and lower bounds on market costs given.

Description: The investment risk generated by a stochastic interest rate is recognized as often the greatest risk associated with a whole life or retirement policy. Recent research has investigated the mathematics of this risk when the interest rate follows a stochastic process and the time to death is considered to be random. In this paper we focus on the use of the zero coupon bond as an investment instrument to fund a whole life policy. It is unlikely that a company will entirely fund a particular single policy with a zero coupon bond.

Description: This paper establishes the need for home equity conversion schemes for the elderly. It then provides a review of literature pertinent to reverse mortgages paying particular attention to the different types of reverse mortgages and their associated risks. In an attempt to better quantify the general appreciation risk faced by financial institutions issuing reverse mortgages, ARIMA techniques are employed to model Canadian house prices in both current and real dollar terms.

Description: In this paper we discuss the link between the price of a contingent claim and its replicating strategies. We compute the replicating strategies for some contingent claims when the price of stocks are modeled using either the Wiener process or the Poisson process. These replicating strategies are essential knowledge if one wishes to implement a dynamic trading strategy.

Description: This paper examines the problem of hedging foreign exchange risk across multiple countries using currency options. The profit target requirement is formulated as a stochastic constraint in the context of a binomial lattice. Models are presented for European options. In a numerical example, five currency options are selected, allowing for long or short positions, depending on the target value.

Description: This note develops the optimality of the put option as a hedging strategy. For an investor who owns a stock, he can buy a put option to hedge against the downside risk of the stock price. In this short note, we ask two questions with the hedge strategy of the put option. First, whether the investor is better off with the hedging strategy? Second, if the investor is better off with the hedging strategy, whether it is the optimal hedging plan? Our result shows that in a risk averse world an investor will maximize his utility with buying the put option as a hedge strategy.

Description: This presentation suggests a possible flexible solution to the time and resource problems of running a large number of stochastic interest rate scenarios, by selecting a representative subset. Each interest rate scenario consists of 30 future spot yield curves, where a reasonable number of points are specified on each curve such as 12. The distribution of the scenarios is approximated by the subset and each scenario in the subset has equal weight. The method is independent of the inter rate generator used.

Description: This paper suggests a possible flexible solution to the time and resource problems of running a large number of stochastic interest rate scenarios, by selecting a representative subset. Each interest rate scenario consists of 30 future spot yield curves, where a reasonable number of points are specified on each curve such as 12. The distribution of the scenarios is approximated by the subset and each scenario in the subset has equal weight. The method is independent of the interest rate generator used.

Description: Given a financial transaction we are often interested in the number of internal rates of return [yield rates] and their location. From an actuarial point of view, the fundamental question is to identify those transactions with a single yield rate, or a single rate in some interval such as the positive reals. In this paper we are concerned with this counting problem. We survey various results concerning this problem, and provide a unifying approach together with some new insights.