Description: Investment Fallacies: The "Dollar Bill" Fallacy

Description: In this paper we study the pricing of financial options and contingent claims. We show that two time-honored concepts in actuarial science - the Esscher transform and the adjustment coefficient - are efficient tools for pricing many options and derivative securities if the logarithms of the prices of the primitive securities are certain stochastic processes with stationary and independent increments. We also study the pricing of American options on two stocks without expiration date and with payoff functions which are homogeneous with respect to the two stock prices.

Description: In this paper,we present a method which first converges a two dimensional data to a univariate one and then uses the interval censoring technique to estimate the probability of failure of a Joint-life status from a heavily censored data. Our study shows that the life annuities of joint-life status calculated assuming independence overestimates the ones evaluated from an actual sample of population.

Description: By the use of resampling and extreme value statistics we will develop a method to reduce the time and costs of testing insurance company insolvency. Most ruin models require assumptions about the surplus distribution and/or assumptions about the claims count and severity distributions. The actuary may not be comfortable in making these ruin assumptions. Instead, he or she may generate such distributions by running extensive computer simulations of corporate models, I introduce a method to reduce the number of simulations necessary' to estimate the 1 and 0.1 percentiles of the surplus distribution. This approach 'cuts off' the tail at approximately the tenth percentile of the sample distribution and generates new tails for the distribution by resampling. Averages of the new order statistics approximate the I and 0.1 percentiles.

Description: Sooner or later a casualty actuary is confronted by the question, Given a history of paid loss amounts by calendar year, what should reserves be? Often, it is not possible to accurately gather and analyze additional data within the time constraints for the reserving decision. The algebraic reserving method presented in this paper offers one approach to rapidly addressing this problem. The paper consists of four sections - General Considerations, Formulas, Examples, and Conclusion.

Description: This paper presents the modeling of mortality risk from exposure to a potential future extreme event such as a natural disaster and a terrorist attack, and its impact on life insurance. With this new model, quantities associated with the total force of mortality such as survival function are derived and the impact of mortality risk on life insurance is examined.

Description: This paper is to some extent a sequel to my previous paper A Bond Manager's Method for ALM published in Actuarial Research Clearing House Volume 1993.3. It borrows from that paper the concept of benchmark weights for measuring the sensitivity of the present value of a set of cash flows to changes in interest rates. However, a completely different approach to calculating benchmark weights is presented.

Description: It is obvious that the introduction of a deductible has two major effects. The amount paid for every claim will drop, resulting in a lower claim burden for the insurance company. There will also be a drop in claim frequency, leading to a decrease in claim handling expenses. However, it is by no means obvious how the average claim size changes with the introduction of a deductible. In this paper, we will study this question. First, we derive some theoretical results then apply them to concrete distributions.

Description: This is an abstract of presentation from 39th Actuarial Research Conference, 8/5-7/2004, University of Iowa in Iowa City, Iowa. In this talk, we examine the modeling of insurance losses resulting from natural catastrophes, particularly losses to residential and commercial structures as a result of earthquakes. The model proposed can also be used for other types of natural catastrophes such as floods and hurricanes.

Description: Investment Fallacies: The Fallacy of the Fed Model