Product pricing and solvency capital requirements for long-term care insurance

This paper presents a comprehensive assessment of premiums, reserves and solvency capital requirements (SCRs) for long-term care (LTC) insurance policies using Activities of Daily Living and US data. We compare stand-alone policies, whole life insurance policies with LTC benefit riders (LTC insurance combined with whole life insurance), life care annuities (LTC insurance combined with annuities) and shared LTC insurance in terms of net premium cost and SCRs. Net premiums and best-estimate reserves for base LTC insurance policies are determined using Thiele’s differential equation. Product features such as the elimination period and the maximum benefit period are compared using a simulation-based model. We show how a maximum benefit period can reduce costs and risks for LTC insurance products. SCRs for longevity risk and disability risk are based on the Solvency II standard formula. We quantify the extent to which whole life insurance policies with LTC benefit riders and life care annuities provide lower SCRs than stand-alone LTC insurance policies.     

Robustly optimal monetary policy in a microfounded New Keynesian model

We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model-consistency. We show how to characterize robustly optimal policy without restricting consideration a priori to a particular parametric family of candidate policy rules. We show that robustly optimal policy can be implemented through commitment to a target criterion involving only the paths of inflation and a suitably defined output gap, but that a concern for robustness requires greater resistance to surprise increases in inflation than would be considered optimal if one could count on the private sector to have “rational expectations.”     

Bankruptcy reform in the Middle East and North Africa: Analyzing the new bankruptcy Laws in the UAE,Saudi Arabia,Morocco, Egypt,and Bahrain

For years, countries in the Middle East and North Africa (MENA) region have been trying to increase entrepreneurship rates and attract foreign investment, however, their bankruptcy statutes remained antiquated and punitive in nature. Potential start‐ups and foreign investors have been deterred from these markets due to a lack of alternative solutions to liquidation and a fear of punishment for business failure. At least seven countries in the region have now taken steps to modernize their bankruptcy laws to provide restructuring mechanisms and other measures designed to incentivize risk‐taking rather than to deter it. With this year's crash in oil prices, an unprecedented global pandemic and an imminent recession, an effective bankruptcy system has become even more critical to avoid catastrophic results for the employment rates and economic value of the companies in the region. However, despite these recent reforms, significant improvements are still needed to maximize the value and benefits of bankruptcy procedures in the face of these growing economic threats.     

Opportunist dealing in the UK pig meat supply chain: Trader mentalities and alternatives

The scandal surrounding the presence of horsemeat in UK supermarket meat products has focused public attention on the problems of complex, fragmented food supply chains. Through a study of the UK's pig meat supply chain, this paper proposes a new framing of the problem in terms of opportunistic dealing adopted by the supermarkets in vertically disintegrated supply chains, where all actors attempt to pass the risks and costs onto somebody else. This outcome is the result of cultural practices and competences in buyer-led supermarket organizations where strong supermarket chains have the power to capture processor and producer margins. One consequence is that mass-market meat production and processing is close to unviable, as evidenced here by the analysis of the VION Food Group. However, there are mainstream alternatives to the retail-led dysfunctional supply chain. This paper presents an alternative integrated supply chain model using the case of Morrisons, the UK's fourth largest supermarket chain. If fragmented supply chains are not inevitable, the important issue explored in the conclusion is how the inadequacies of government policy, which understands the problem of the sector but is stuck with a competition-based mindset, obstruct the creation of a more sustainable supply chain.     

The maximum entropy mortality model: forecasting mortality using statistical moments

ABSTRACT

The age-at-death distribution is a representation of the mortality experience in a population. Although it proves to be highly informative, it is often neglected when it comes to the practice of past or future mortality assessment. We propose an innovative method to mortality modeling and forecasting by making use of the location and shape measures of a density function, i.e. statistical moments. Time series methods for extrapolating a limited number of moments are used and then the reconstruction of the future age-at-death distribution is performed. The predictive power of the method seems to be net superior when compared to the results obtained using classical approaches to extrapolating age-specific-death rates, and the accuracy of the point forecast (MASE) is improved on average by 33% respective to the state-of-the-art, the Lee–Carter model. The method is tested using data from the Human Mortality Database and implemented in a publicly available R package.     

Management’s personal ideology and financial reporting quality

Review of Quantitative Finance and Accounting - We investigate the relation between managers’ personal ideologies and financial reporting quality. We use Federal Elections Commission data to...     

Is the Abnormal Post-IPO Underperformance Really Abnormal? The Evidence from CEE Emerging Markets

Using sorting procedures and cross-sectional tests, we investigate the long-run post-IPO performance and its sources in the Central and Eastern European (CEE) markets. We examine over 1100 stocks from 11 CEE countries for the period 2002–2014. We find that “old stocks” perform significantly better than “young stocks”, but only when the market beta is the sole risk factor considered. After accounting for the size and value effects, the IPO firms perform neither better nor worse than non-issuing companies. The sources of the initial low B/M ratios of debuting companies may lie in time-varying financial quality. The market newcomers are financially healthier than their older counterparts. However, over 2–5 years the fundamentals deteriorate and the financial standing regresses to the mean.     

The jump component of S&P 500 volatility and the VIX index

Much research has investigated the differences between option implied volatilities and econometric model-based forecasts. Implied volatility is a market determined forecast, in contrast to model-based forecasts that employ some degree of smoothing of past volatility to generate forecasts. Implied volatility has the potential to reflect information that a model-based forecast could not. This paper considers two issues relating to the informational content of the S&P 500 VIX implied volatility index. First, whether it subsumes information on how historical jump activity contributed to the price volatility, followed by whether the VIX reflects any incremental information pertaining to future jump activity relative to model-based forecasts. It is found that the VIX index both subsumes information relating to past jump contributions to total volatility and reflects incremental information pertaining to future jump activity. This issue has not been examined previously and expands our understanding of how option markets form their volatility forecasts.     

Capital expenditures,financial constraints,and the use of options

This paper analyzes why gold mining firms use options instead of linear strategies to hedge their gold price risk. Consistent with financial constraints based theories, the largest and least financially constrained firms are the most likely to hedge with insurance strategies (put options), while more constrained firms finance the purchase of puts by selling calls (collars). The most financially constrained firms use strategies that involve selling calls. Firms with large investment programs are also more likely to use insurance rather than linear strategies. Firms’ hedging instrument choices are also correlated with current market conditions, suggesting that managers’ market views partially drive hedging instrument choices.