New directions in local accountability: Can the people be trusted?

Everyone is talking about accountability but it is a hard concept to pin down. The Audit Commission commends some of the Governments’ reforms, but believes that ultimately it will be people who will determine whether a better system of accountability emerges.     

Discussion of the Papers By Robert L. Brown and Thomas Trauth

Abstract

We find the minimum probability of lifetime ruin of an investor who can invest in a market with a risky and a riskless asset and who can purchase a deferred life annuity. Although we let the admissible set of strategies of annuity purchasing process be the set of increasing adapted processes, we find that the individual will not buy a deferred life annuity unless she can cover all her consumption via the annuity and have enough wealth left over to sustain her until the end of the deferral period.     

Are tightened trading rules always bad? Evidence from the Chinese index futures market

This paper investigates the impact of tightened trading rules on the market efficiency and price discovery function of the Chinese stock index futures in 2015. The market efficiency and the price discovery of Chinese stock index futures do not deteriorate after these rule changes. Using variance ratio and spectral shape tests, we find that the Chinese index futures market becomes even more efficient after the tightened rules came into effect. Furthermore, by employing Schwarz and Szakmary [J. Futures Markets, 1994, 14(2), 147–167] and Hasbrouck [J. Finance, 1995, 50(4), 1175–1199] price discovery measures, we find that the price discovery function, to some extent, becomes better. This finding is consistent with Stein [J. Finance, 2009, 64(4), 1517–1548], who documents that regulations on leverage can be helpful in a bad market state, and Zhu [Rev. Financ. Stud., 2014, 27(3), 747–789.], who finds that price discovery can be improved with reduced liquidity. It also suggests that the new rules may effectively regulate the manipulation behaviour of the Chinese stock index futures market during a bad market state, and then positively affect its market efficiency and price discovery function.     

Über die Begriffe Schiefheit und Exzess in der mathematischen Statistik

Abstract

Danish life assurance for some time has been characterized by a very high yield of interest as compared with a moderate official valuation rate. This has resulted in bonus additions up to several times the face amounts assured by the policies. In order to introduce new types of assurance coverage to cope with these conditions, it will prove useful to look at the valuation of life policies from a slightly new angle.     

Estimating GARCH models using support vector machines*

Abstract

Support vector machines (SVMs) are a new nonparametric tool for regression estimation. We will use this tool to estimate the parameters of a GARCH model for predicting the conditional volatility of stock market returns. GARCH models are usually estimated using maximum likelihood (ML) procedures, assuming that the data are normally distributed. In this paper, we will show that GARCH models can be estimated using SVMs and that such estimates have a higher predicting ability than those obtained via common ML methods.     

A Recursive Scheme for Perpetuities with Random Positive Interest Rates. II: The Impenetrable Wall

In some former contributions, the authors investigated actuarial quantities with stochastic interest rates. In a first model, the randomness is modelled by means of an ordinary Wiener process, and as a consequence negative interest rates are possible. A second model provides a tool to avoid these negative interest rates, which can be necessary in particular situations. This paper wants to present an alternative solution to the problem of negative interest rates. This new model will be implemented to the case of an annuity certain and of a perpetuity.     

Debate: The need for procurement risk management

Improvement boards offer a new approach to supporting stronger performance by public service organizations, and especially those facing significant issues of change. They involve formalized peer challenge and support by senior politicians and managers from other agencies. The authors document early experiences with improvement boards in local government and draw conclusions for policy and practice. Improvement boards will have the most impact where the organization's leadership already has some understanding of the performance improvement task, and is able to position the board as part of a wider strategy for change.     

Impacts on Economic Security Programs of Rapidly Shifting Demographics

Abstract

This paper analyzes in some detail potential impacts on economic security programs—government, employer, and individual—that the aging of the baby boom generation may create. It begins by defining what is meant by “population aging” and concludes that fertility shifts are more important than improving life expectancy. It also argues that calling the baby boom the “postwar baby boom” is inaccurate and will lead to missed targets for product development and marketing. Finally, this section of the paper notes that the most rapidly growing segment of the population will be the oldest old—those age 85 and over, who will also put the greatest stress on the provision of health care and retirement income security.

The paper then looks at other demographic shifts of importance, in particular female labor force participation rates. The impact of shifting demographics is reviewed for each sponsor of economic security programs: the government (health care and social security); the employer (pension plans and group benefits); and the individual. Points of concern and offsetting opportunities for the insurance industry are noted. Finally, the paper looks at whether we will be able to “afford” the sudden retirement of the baby boom. The conclusion is that this will be affordable if we can convince a portion of the labor force to stay active longer, and if we have healthy productivity growth rates. The problems of an aging population can all be viewed as opportunities for those who have the map.     

Developing public servants for the future

ABSTRACT

The majority of UK civil servants are ‘developed’ within a particular service or profession and there is frequently very little movement into other service areas. Many current leaders therefore have limited experiences in services and organizations other than their own. This paper presents a new graduate programme for the training and development of future public leaders in Wales. The programme is a leadership and development programme for civil and public servants, exposing them to a range of services. The intention is that, through these experiences, future leaders will approach problems from a multi-service perspective, will be better networked and ready to deal with complexity. Areas of good practice are highlighted, together with some of the challenges of developing leaders in this way.     

What is a Conceptual Framework for Financial Reporting?

ABSTRACT

Despite more than forty years of exploration into constructing a conceptual framework (CF) for financial reporting the question ‘What is a CF?’ has not been adequately answered. The result is that those who construct CFs are not guided by a clear concept of a CF and communication about CFs is undermined by differences in understanding what it is. There has been a failure to undertake conceptual enquiry into the nature of a CF or into the expressions used in describing it. This paper addresses this failure by undertaking such a conceptual enquiry. Existing explanations of CFs are examined and found to be inadequate. What is wanted from a CF is identified and explained and this is used to prescribe what should be understood by the expression ‘conceptual framework’. A new characterisation of CFs is given that should assist any future construction of new CFs. Problems that may be faced by those who seek to construct a CF are identified.     

A Statistical Control Model for Utilization Management Programs

Abstract

A new approach is proposed for monitoring health-care costs to help in cost containment efforts. This informative essay is intended to provide information on and stimulate discussion of ways of improving the health-care management process.

Data that are being collected by insurers and providers could be used to analyze and improve the health-care process. New statistical techniques, and better, more consistent input of data, will be critical to successful utilization management programs. Necessary conditions for the success of the new methods are (1) diagnosis protocols that are “true gold standards,” (2) a satisfactory disease classification system, (3) meaningful and consistently coded data, and (4) statistical methodology that takes advantage of as much of the available data as possible. The hospital admissions process is illustrated to show the incorporation of an inexpensive statistical control process for reducing the incidence of unnecessary hospitalizations.     

Insurance economics

Abstract

Background

Insurance accounting is generally speaking based upon the idea that a comparison shall be made between “premiums earned” and “claims incurred”. Even if there are exceptions in different countries and in different classes of business the method where premiums earned and claims incurred are compared is so widely used that we will take this method as our starting point for a discussion of the shortcomings, if any, of insurance accounting.     

Basic concepts in life assurance mathematics

Abstract

1. Introduction.

In this paper the basic concepts of the life insurance mathematics will be discussed. Due to the fact that the importance of the probability calculus as a hasis for the actuarial science has repeatedly been disclaimed in recent literature (See e.g. Ernst ZWinggi (1]), the present author feels that there is a justification for reconsidering the fundamental ideas of the actuarial science.     

Bayesian Modelling of Outstanding Liabilities Incorporating Claim Count Uncertainty

Abstract

This paper deals with the prediction of the amount of outstanding automobile claims that an insurance company will pay in the near future. We consider various competing models using Bayesian theory and Markov chain Monte Carlo methods. Claim counts are used to add a further hierarchical stage in the model with log-normally distributed claim amounts and its corresponding state space version. This way, we incorporate information from both the outstanding claim amounts and counts data resulting in new model formulations. Implementation details and illustrations with real insurance data are provided.     

Overcoming trade union resistance to local change

As Labour councils throughout the country are discovering, it is not just the Tories who are obsessed by the need for efficiency in the provision of services. And it is not just Margaret Thatcher who has to take on the unions in order to achieve it.     

From the Minimal Entropy Martingale Measures to the Optimal Strategies for the Exponential Utility Maximization: the Case of Geometric Lévy Processes

In this article, we will consider a multi-dimensional geometric L'evy process as a financial market model. We will first determine the minimal entropy martingale measure (MEMM); we will next derive the optimal strategy for the exponential utility maximization of terminal wealth concretely from the representation of the MEMM. JEL Classification: D46, D52, G12 AMS (2000) Subject Classification: 60G44, 60G51, 60G52,60H20, 60J75, 91B16, 91B28, 94A17     

The theory of confluent hypergeometric functions and its application to compound poisson processes

Abstract

A. Confluent Hypergeometric Functions

The theory of such functions will be recapitulated here following a recently published book (Slater, L. J., Confluent Hypergeometric Functions, Cambr. Univ. Press 1960).     

The Impact of the Automatic Balancing Mechanism for the Public Pension in Japan on the Extreme Elderly

Abstract

Most developed countries are seeking ways to maintain a sustainable social security system. Japan is no exception. The old-age dependency ratio in Japan is currently 35% and is expected to be 74% in 2050. Recently the Japanese government has adopted an automatic balancing mechanism, which gradually reduces the real price of the public pension through a reduction of inflation adjustments. The reduction, depending on future demographics, is a random process, so the elderly, in particular the extreme elderly, have to take the risk of receiving an inadequate public pension. The objectives of this paper are threefold. First, we review the recent trends in Japanese mortality and explain the underlying longevity issues that led to the automatic balancing mechanism. Second, by means of stochastic mortality and fertility modeling, we analyze how demographic changes will affect the future of public pensions in Japan. Third, we demonstrate, on the basis of the stochastic projections we made, how the automatic balancing mechanism will affect the financial security for people who live beyond age 100.     

A Note on the Myers and Read Capital Allocation Formula

Abstract

The Myers and Read capital allocation formula is an important new actuarial result. This paper gives an overview of the Myers and Read result, explains its significance to actuaries, and provides a simple proof. Then it explains the assumption that the allocation formula makes on the underlying families of loss distributions as expected losses by line vary. It shows that this assumption does not hold when insurers grow by writing more risks from a discrete group of insureds—as is typically the case. Finally, it shows that this failure has a material impact on the predicted results in a realistically sized portfolio of property casualty risks which will severely limit the practical application of the Myers and Read allocation formula.