Bounds for Actuarial Present Values Under the Fractional Independence Assumption

We consider the fractional independence (FI) survival model, studied by Willmot (1997), for which the curtate future lifetime and the fractional part of it satisfy the statistical independence assumption, called the fractional independence assumption.

The ordering of risks of the FI survival model is analyzed, and its consequences for the evaluation of actuarial present values in life insurance is discussed. Our main fractional reduction (FR) theorem states that two FI future lifetime random variables with identical distributed curtate future lifetime are stochastically ordered (stop-loss ordered) if, and only if, their fractional parts are stochastically ordered (stop-loss ordered).

The well-known properties of these stochastic orders allow to find lower and upper bounds for different types of actuarial present values, for example when the random payoff functions of the considered continuous life insurances are convex (concave), or decreasing (increasing), or convex not decreasing (concave not increasing) in the future lifetime as argument. These bounds are obtained under the assumption that some information concerning the moments of the fractional part is given. A distinction is made according to whether the fractional remaining lifetime has a fixed mean or a fixed mean and variance. In the former case, simple unique optimal bounds are obtained in case of a convex (concave) present value function.

The obtained results are illustrated at the most important life insurance quantities in a continuous random environment, which include bounds for net single premiums, net level annual premiums and prospective net reserves.     

Nonuniform Staggered Prices and Output Persistence

Staggered prices are a fundamental building block of New Keynesian dynamic stochastic general equilibrium models. In the standard model, prices are uniformly staggered, but recent empirical evidence suggests that deviations from uniform staggering are common. This paper analyzes how synchronization of price changes affects the response to monetary policy shocks. I find that even large deviations from uniform staggering have small effects on the response of output. Aggregate dynamics in a model of uniform staggering may serve well as an approximation to a more complicated model with some degree of synchronization in price setting.     

Reversible Jump Markov Chain Monte Carlo Method for Parameter Reduction in Claims Reserving

Abstract

We present an application of the reversible jump Markov chain Monte Carlo (RJMCMC) method to the important problem of setting claims reserves in general insurance business for the outstanding loss liabilities. A measure of the uncertainty in these claims reserves estimates is also needed for solvency purposes. The RJMCMC method described in this paper represents an improvement over the manual processes often employed in practice. In particular, our RJMCMC method describes parameter reduction and tail factor estimation in the claims reserving process, and, moreover, it provides the full predictive distribution of the outstanding loss liabilities.     

The macroeconomic consequences of migration diversion: Evidence for Germany and the UK

This paper examines the macroeconomic consequences of the diversion of migration flows away from Germany towards the UK in the course of the EU's Eastern Enlargement. The EU has agreed transitional periods for the free movement of workers with the new member states from Central and Eastern Europe. The selective application of migration restrictions during the transitional periods has resulted in a reversal of the pre-enlargement allocation of migration flows from the new member states across the EU. Based on a forecast of the migration potential under the conditions of free movement and of the transitional arrangements, we employ a CGE model with imperfect labour markets to analyse the macroeconomic effects of this diversion process. We find that EU Eastern enlargement has increased in the GDP per capita in the UK substantially, but that the diversion of migration flows towards the UK has reduced wage gains and the decline in unemployment there. The effects of the EU Eastern enlargement are less favourable for Germany, but the diversion of migration flows has protected workers there against a detrimental impact on wages and unemployment.     

Electricity spot price modelling with a view towards extreme spike risk

Sums of Lévy-driven Ornstein–Uhlenbeck processes are appropriate for modelling electricity spot price data. In this paper we present a new estimation method with particular emphasis on capturing the high peaks, which is one of the stylized features of such data. After introducing our method we show it at work for the EEX Phelix Base electricity price index. We also present a small simulation study to demonstrate the performance of our estimation procedure.     

Implementation of IFRS for SMEs in Emerging Economies: Stakeholder Perceptions in the Czech Republic,Hungary, Romania and Turkey

This research investigates the perceptions of stakeholders involved in financial reporting in four emerging economies (the Czech Republic, Hungary, Romania, and Turkey) regarding the possible implementation of IFRS for SMEs, in terms of costs, benefits, and strategy of adoption. In‐depth, semi‐structured interviews were conducted with representatives of main stakeholders (preparers, auditors, regulators, professional bodies, and users). We find more support for IFRS for SMEs implementation in these four countries than suggested by the results of the European Commission's 2010 consultation for the European Union. Interviews reveal differences between stakeholder groups and between countries regarding the preferred implementation approach (mandatory adoption, voluntary adoption or convergence of national regulations with IFRS for SMEs). Interviews indicate the most support for the convergence approach. However, users oppose convergence and prefer the adoption of IFRS for SMEs. The convergence approach moves regulators' attention from users' needs to preparers' preferences and preparedness. This finding is relevant in the decision‐making process of national regulators, who should balance the needs of various stakeholders, but also the country's political and economic objectives.