Estimating the impact of social isolation on subjective health in Europe

Quality & Quantity - We investigate the relationship between social isolation and subjective health, considering that this relationship is potentially affected by endogeneity due to the...     

Implicit Options in Life Insurance: Valuation and Risk Management

Participating life insurance contracts typically contain various types of implicit options. These implicit options can be very valuable and can thus represent a significant risk to insurance companies if they practice insufficient risk management. Options become especially risky through interaction with other options included in the contracts, which makes their evaluation even more complex. This article provides a comprehensive overview and classification of implicit options in participating life insurance contracts and discusses the relevant literature. It points out the potential problems particularly associated with the valuation of rights to early exercise due to policyholder exercise behavior. The risk potential of the interaction of implicit options is illustrated with numerical examples by means of a life insurance contract that includes common implicit options, i.e., a guaranteed interest rate, stochastic annual surplus participation, and paid-up and resumption options. Valuation is conducted using risk-neutral valuation, a concept that implicitly assumes the implementation of risk management measures such as hedging strategies.     

Enterprise risk management in financial groups: analysis of risk concentration and default risk

In financial groups, enterprise risk management is becoming increasingly important in controlling and managing the different independent legal entities in the group. The aim of this paper is to assess and relate risk concentration and joint default probabilities of the group’s legal entities in order to achieve a more comprehensive picture of a financial group’s risk situation. We further examine the impact of the type of dependence structure on results by comparing linear and nonlinear dependencies using different copula concepts under certain distributional assumptions. Our results show that even if financial groups with different dependence structures do have the same risk concentration factor, joint default probabilities of different sets of subsidiaries can vary tremendously.

Are there economies of scale in the demand for money by firms? Some panel data estimates

We estimate elasticities of scale in the demand for money by firms using firm level panel data from Spain, the UK, and the US. This elasticity is one for Spain and the UK but smaller for the US. We find that the errors in the money demand equations contain two terms that are correlated with sales. Firstly, a permanent firm effect that captures differences in technological sophistication. Secondly, a measurement error in sales, which becomes relevant when relying on changes in sales to account for fixed effects. Failure to control for these correlated unobservable terms results in important biases in the estimated sales elasticities.     

Determinants and Value of Enterprise Risk Management: Empirical Evidence From the Literature

The development of an enterprise risk management (ERM) program enables companies to manage corporate risks in a holistic manner as opposed to the silo‐based perspective in traditional risk management frameworks. One main question in this regard is what factors drive the implementation of an ERM system in companies and whether ERM programs can actually create value once implemented. This article addresses these questions by conducting a comparative assessment of empirical evidence from the literature regarding the determinants of ERM and its value once implemented. In doing so we are able to illustrate differences in model specifications and the underlying data. Our literature study shows that particularly the company size and the level of institutional ownership are significantly positively related to the implementation of ERM in most empirical studies and, furthermore, that ERM generally has a (significant) positive impact on corporate value and performance (to a different extent and depending on the focus of the studies). However, geographic and/or industrial restrictions regarding the underlying data sets partly limit the generalization of the empirical results.     

Critical Illness Insurances: Challenges and Opportunities for Insurers

Since the first introduction of critical illness insurance in 1983 in South Africa, the product has successfully spread to some insurance markets, especially in Asian and Anglophone countries, but market penetration remains low in other countries. For this reason and because of the increasing relevance of dread diseases, the aim of this article is to provide a first comprehensive overview of challenges and opportunities associated with critical illness products for insurers. Toward this end, we first present the various product designs, as well as the developments that have taken place within the market before comparing this form of coverage to alternative insurance products in order to better assess the market potential. Based on these assessments, we thoroughly discuss the major challenges and opportunities within the market from the insurer's perspective.     

Networks and geography in the economics of knowledge flows. A comment

This paper proposes a comment on the article by M. A. Maggioni and T. E. Uberti within this issue. It focuses on one main question: can we say that the literature on Networks and Geography has reached the initial objective assigned to it: “Demonstrate that networks and geography are the necessary ingredients for every study of the innovative process at any level of analysis: from individual agents, to institution/organization, from the regional to the national and international level”? The answer to this question is presented following three main steps: (1) How do geographical positioning and network positioning interact to impact the innovative performance? (2) What is the influence of the geography on the networking strategies (cooperation choices)? (3) What is the influence of the network upon geographical strategies (location choices)? The conclusion is that the field described by Mario Maggioni and Erika Uberti is, as their paper shows, fast expanding and already has a history and appreciable results. It still clearly appears however that much still remains to be done if the potentiality offered by the cross-use of spatial and network analysis when dealing with knowledge diffusion and its impact on innovation is to be fully exploited. No doubt that the important advances accomplished during these last years in the collecting of data related to localized relationships will provide the necessary incentives to develop the still greatly lacking micro-econometric analyses.