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Journal articles on the topic 'Insurance derivatives'

Author: Grafiati

Published: 4 June 2021

Last updated: 11 February 2022

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1

Assa, Hirbod. "A financial engineering approach to pricing agricultural insurances." Agricultural Finance Review 75, no. 1 (2015): 63–76. http://dx.doi.org/10.1108/afr-12-2014-0041.

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Purpose – The purpose of this paper is to introduce a continuous time version of the speculative storage model of Deaton and Laroque (1992) and to use for pricing derivatives, in particular insurances on agricultural prices. Design/methodology/approach – The methodology of financial engineering is used in order to find the partial differential equations that the dynamics of derivative prices have to satisfy. Furthermore, by using the Monte-Carlo method (and Feynman-Kac theorem) the insurance prices is computed. Findings – Results of this paper show that insurance prices (and derivative prices in general) are heavily influenced by market structure, in particular, the demand function specifications. Furthermore, through an empirical analysis, the performance of the continuous time speculative storage model is compared with the geometric Brownian motion model. It is shown that the speculative storage model outperforms the actual data. Practical implications – Since the agricultural insurances in many countries are subsidised by government, the results of this paper can be used by policy makers to measure changes in agricultural insurance premiums in scenarios that market experiences changes in demand. In the same manner, insurance companies and investors can use the results of this paper to better price agricultural derivatives. Originality/value – The issue of agricultural insurance pricing (in general derivative pricing) is of great concern to policy makers, investors and insurance companies. To the author’s knowledge, an approach which uses the methodology of financial engineering to compute the insurance prices (in general derivatives) is new within the literature.

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2

Canter, Michael S., Joseph B. Cole, and Richard L. Sandor. "Insurance Derivatives." Journal of Derivatives 4, no. 2 (1996): 89–104. http://dx.doi.org/10.3905/jod.1996.407966.

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3

Carkin, E., S. Chekirov, A. Echimova, et al. "Weather Derivatives in Russia: Farmers’ Insurance against Temperature Fluctuations." Review of Business and Economics Studies 6, no. 1 (2018): 29–42. http://dx.doi.org/10.26794/2308-944x-2018-6-1-29-42.

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This project proposes the use of weather derivatives, a type of financial instrument with a payout based on weather conditions, as a method for Russian farmers to hedge against daily temperature fluctuations. We created a weather derivative simulation tool in Microsoft Excel that calculates the effect of temperature on crop yield and then analyzes how the return of weather derivatives can potentially compensate for crop loss. Based on this tool, we developed a series of recommendations to help implement this system of protection with real users.

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4

Vashisht, Anil. "Usage of rainfall derivatives to hedge rainfall risk: A feasibility study of Gwalior Chambal region." Indian Journal of Science and Technology 13, no. 42 (2020): 4369–73. http://dx.doi.org/10.17485/ijst/v13i42.1771.

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Objectives: To check the awareness level of farmers towards crop insurance schemes available so far and their satisfaction level with those schemes. To check the acceptability of farmers towards rainfall derivatives Methods: To achieve the objective of study, we have conducted a survey among the farmers of Gwalior Chambal region in India. The sample size of survey was 470 farmers; we have selected 5 villages per tehsil and 2 farmers per village. We have used cross tabulation to analyse the collected data. Findings: This study shows that only few farmers were aware about the previously launched crop insurance schemes by government and out the farmers who were aware and used the previous schemes were not satisfied with them. This study also shows the positive response by farmers towards rainfall derivative products. The study shows that most of the farmers believed that rainfall derivative can be a very effective tool for hedging the rainfall risk. Novelty: This study is very much helpful to understand the acceptability of rainfall derivatives among the farmers of Gwalior-Chambal region. This study can be used as a recommendation to launch the rainfall derivatives in India. Keywords: Rainfall risk; rainfall derivatives; crop insurance; hedging; weather index-based insurance; crop damage

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De Ceuster, Marc, Liam Flanagan, Allan Hodgson, and Mohammad I. Tahir. "Determinants of Derivative Usage in the Life and General Insurance Industry: The Australian Evidence." Review of Pacific Basin Financial Markets and Policies 06, no. 04 (2003): 405–31. http://dx.doi.org/10.1142/s0219091503001146.

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Core business and financial market risks are not easily reduced by standard operating procedures in insurance companies. Derivatives theoretically provide a cost effective vehicle to hedge these risks. This paper provides an empirical analysis of the determinants of derivative usage as well as the extent of derivative usage in the Australian insurance industry in both life and general insurance companies for the period 1997–1999. Empirical results for the Australian life insurance industry in general confirm the findings of UK and US based research. However, the Australian general insurance industry does not appear to follow the conclusions of previous literature. Our results indicate that for life insurers, the determinants of derivative usage were size, leverage and reinsurance. For the general insurance industry the determinants were size and the extent of long tail lines of business written. As regards the determinants of the extent of derivative usage, these were size and asset-liability duration mismatches for life insurers. For the general insurance industry the determinants of the extent of derivative usage were size, the extent of long tail lines of business written, and the reporting year.

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6

Kropienė, Rūta, and Gžegož Jurgo. "Weather Derivatives: Usage Possibilities for the Lithuanian Economy." Lietuvos statistikos darbai 49, no. 1 (2010): 62–68. http://dx.doi.org/10.15388/ljs.2010.13949.

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The impact of weather on many commercial and recreational activities is significant and varies both geographically and seasonally. Many industries, including agriculture, energy, utility, construction, tourism and other businesses, are either favourably or adversely affected by “bad” weather. For this reason, financial markets have devised a relatively new class of instruments, the so-called “weather derivatives”, the first of which were launched in 1996 in the United States. There is a number of factors behind the growth in the weather derivatives market. One of these is the deregulation of energy markets. Another one is that capital and insurance markets have come closer to each other. A weather derivative is the newest product of the financial derivatives market. It allows a market participant to minimise a risk from daily weather fluctuations, while insurance companies sell insurance against catastrophic events. The main aim of this article is to explore possibilities to use weather derivatives for the Lithuanian economy. To reach the aim, the following goals were set: to describe products of weather derivatives and their features and to present the possibilities to use these derivatives in the Lithuanian economy on the basis of an example of temperature derivatives. A hypothesis is made that Lithuanian companies could discover new possibilities for business management through the use of weather derivatives. The methods used in the paper are as follows: comparative analysis, indexes, regression and correlation analysis.

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7

Hee, Park Kwang, and Woon Kyung Song. "Factors Affecting Derivatives Use for Life Insurance Companies." International Journal of Economics and Finance 9, no. 12 (2017): 168. http://dx.doi.org/10.5539/ijef.v9n12p168.

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The aim of this article is to investigate what factors affect derivatives use for life insurance companies in Korea. For life insurance companies in Korea, there are some problems to solve. First one is to meet IFRS standard which emphasizes solvency. Second one is to overcome problems from macroeconomic including low economic growth and low interest rate, fluctuating foreign currency exchange rate, and problems from population composition change and longer longevity. One of the possible ways to control the risks that life insurance companies face is using derivatives. Traditionally life insurance companies use reinsurance to hedge their inherent risks. However, hedging by using derivatives provides some different merits from those by reinsurance, such as, effects of controlling risks from macroeconomic change, in some cases less costs to control risks, etc. So using derivatives to control risks for life insurance companies is not only for sustainable management but for growth and becoming more competitive. The study results show that asset size, foreign assets and liabilities, proportion of deposit insurance, liquidity, RBC are significant factors affecting derivatives use.

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8

Assa, Hirbod. "Financial engineering in pricing agricultural derivatives based on demand and volatility." Agricultural Finance Review 76, no. 1 (2016): 42–53. http://dx.doi.org/10.1108/afr-11-2015-0053.

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Purpose – The purpose of this paper is twofold. First, the author proposes a financial engineering framework to model commodity prices based on market demand processes and demand functions. This framework explains the relation between demand, volatility and the leverage effect of commodities. It is also shown how the proposed framework can be used to price derivatives on commodity prices. Second, the author estimates the model parameters for agricultural commodities and discuss the implications of the results on derivative prices. In particular, the author see how leverage effect (or inverse leverage effect) is related to market demand. Design/methodology/approach – This paper uses a power demand function along with the Cox, Ingersoll and Ross mean-reverting process to find the price process of commodities. Then by using the Ito theorem the constant elastic volatility (CEV) model is derived for the market prices. The partial differential equation that the dynamics of derivative prices satisfy is found and, by the Feynman-Kac theorem, the market derivative prices are provided within a Monte-Carlo simulation framework. Finally, by using a maximum likelihood estimator, the parameters of the CEV model for the agricultural commodity prices are found. Findings – The results of this paper show that derivative prices on commodities are heavily affected by the elasticity of volatility and, consequently, by market demand elasticity. The empirical results show that different groups of agricultural commodities have different values of demand and volatility elasticity. Practical implications – The results of this paper can be used by practitioners to price derivatives on commodity prices and by insurance companies to better price insurance contracts. As in many countries agricultural insurances are subsidised by the government, the results of this paper are useful for setting more efficient policies. Originality/value – Approaches that use the methodology of financial engineering to model agricultural prices and compute the derivative prices are rather new within the literature and still need to be developed for further applications.

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9

Ankirchner, Stefan, Peter Imkeller, and Alexandre Popier. "Optimal Cross Hedging of Insurance Derivatives." Stochastic Analysis and Applications 26, no. 4 (2008): 679–709. http://dx.doi.org/10.1080/07362990802128230.

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10

Jones, Robert A., and Christophe Pérignon. "Derivatives Clearing, Default Risk, and Insurance." Journal of Risk and Insurance 80, no. 2 (2012): 373–400. http://dx.doi.org/10.1111/j.1539-6975.2012.01489.x.

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11

El Kawaga, Hamed Abd Elkaway, and Asharf Sayed Abdelzaher. "Financial Pricing in Property and Liability Insurances, Evidence From the Egyptian Insurance Market." International Journal of Customer Relationship Marketing and Management 9, no. 4 (2018): 55–69. http://dx.doi.org/10.4018/ijcrmm.2018100104.

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The use of pricing a model's insurance derivatives in corporate risk management, particularity in insurance has grown rapidly recently. Financial prices for insurance reflects equilibrium relationships between risk and return or, minimally, avoid the creation of arbitrage opportunities. The major objective of this article is to provide evidence that in the Egyptian insurance market during the period 2002-2013, using Black-Scholes model, there was a transfer of wealth from policyholders to insurance companies via overvaluation of insurance premiums. This contribution may have some crucial implications in terms of the “fairness” of pricing insurance contracts.

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12

Harrington, Scott E. "Insurance Derivatives, Tax Policy, and the Future of the Insurance Industry." Journal of Risk and Insurance 64, no. 4 (1997): 719. http://dx.doi.org/10.2307/253894.

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13

Mariathasan, Joseph. "The use of derivatives by insurance companies." Balance Sheet 8, no. 1 (2000): 29–32. http://dx.doi.org/10.1108/09657960010338454.

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14

Eichler, Andreas, Gunther Leobacher, and Michaela Szölgyenyi. "Utility indifference pricing of insurance catastrophe derivatives." European Actuarial Journal 7, no. 2 (2017): 515–34. http://dx.doi.org/10.1007/s13385-017-0154-2.

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15

JANG, JIWOOK, JONG JUN PARK, and HYUN JIN JANG. "CATASTROPHE INSURANCE DERIVATIVES PRICING USING A COX PROCESS WITH JUMP DIFFUSION CIR INTENSITY." International Journal of Theoretical and Applied Finance 21, no. 07 (2018): 1850041. http://dx.doi.org/10.1142/s0219024918500413.

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We propose an analytical pricing method for stop-loss reinsurance contracts and catastrophe insurance derivatives using a Cox process with jump diffusion Cox–Ingersoll–Ross (CIR) intensity. The expected payoff of these contracts is expressed by the Laplace transform of the integration of the jump diffusion CIR process and the first moment of the aggregate loss. To confirm that the proposed analytical formula provides stable and accurate insurance derivative prices, we simulate them using a full Monte Carlo method compared to those obtained from its theoretical expectation. It shows that it is much faster way to obtain them than the full Monte Carlo method. We also conduct sensitivity analysis by changing the relevant parameters in the loss intensity providing their figures.

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Ivasenko, Anatolij Grigor’evich, and Evgenii Stepanovich Maevskii. "EXPLORING THE RUSSIAN DERIVATIVES MARKET." Krasnoyarsk Science 8, no. 4 (2019): 95–110. http://dx.doi.org/10.12731/2070-7568-2019-4-95-110.

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Investments through the mechanisms of derivatives are opening a wide range of opportunities for participants on the financial stock. The process of making a derivative investment is the most useful for investments and insurance companies or any other commercial structures on the Russian Federation market and it is a challenging way to invest, which allows ensuring risks and makes a profit at the same time. Economical meaning of different kinds of derivatives is explained. The scientifical article is provided with a historical line about the appearance of derivatives in the Russian Federation to achieve fulfillment in an understanding of undergoing processes on the Russian financial stock. Some essential statistic data on different kinds of derivatives is presented. Particular attention paid to the mathematical methods of derivative cost calculation. The main sources of legal power in a field of Russian derivatives stocks are presented and some analysis of certain law regulations is completed. Overall, research is giving some theoretical investment strategies for participants in the stock market. Purpose: To explain an economical meaning of the derivatives, demonstrate the mechanism of insuring risks by derivatives. Methodology: in article economic-mathematical methods, and also statistical methods of the analysis were used. Results: The main types of derivatives are listed, the economical meaning is explained, methods of mathematical calculation of some types of derivatives are shown. Practical implication: results of this study can be implied by some commercial companies and individual investors.

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17

Kielholz, Walter, and Alex Durrer. "Insurance Derivatives and Securitization: New Hedging Perspectives for the US Cat Insurance Market." Geneva Papers on Risk and Insurance - Issues and Practice 22, no. 1 (1997): 3–16. http://dx.doi.org/10.1057/gpp.1997.1.

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Latvytė, Ernesta, and Raimonda Martinkutė-Kaulienė. "APPLICATION OF AIR DERIVATIVE FINANCIAL INSTRUMENTS IN LITHUANIAN ECONOMY." Mokslas - Lietuvos ateitis 12 (August 13, 2020): 1–9. http://dx.doi.org/10.3846/mla.2020.12510.

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The paper explores the concept of weather derivatives: what it is, what its features are, and in what areas they can be applied. It has been established that there can be several types of weather derivative instruments – options and swaps. The use of weather derivatives has also been found to be very broad and attractive for tourism, construction, agriculture and heating companies. Companies operating in Lithuania do not use weather derivatives, although they do provide insurance against the risks associated with adverse weather conditions. The paper is conducting a study to determine which heating companies should apply weather derivatives to improve their performance. The study is conducted using multi-criteria assessment methods – SAW and TOPSIS. The multi-criteria assessment showed that AB Šiaulių energija and UAB Varėnos šiluma could use the opportunity to apply weather derivatives in their activities.

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19

Gebhard, R. "Financial derivatives in the insurance industry: a criticism." Insurance: Mathematics and Economics 22, no. 2 (1998): 194. http://dx.doi.org/10.1016/s0167-6687(98)80057-7.

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20

Persaud, Avinash. "Credit Derivatives, Insurance Companies and Liquidity Black Holes." Geneva Papers on Risk and Insurance - Issues and Practice 29, no. 2 (2004): 300–312. http://dx.doi.org/10.1111/j.1468-0440.2004.00289.x.

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21

Dudziński, Piotr. "The Effect of Nonmonetary Factors on the Demand for Insurance and Self-Insurance." Przegląd Statystyczny 65, no. 1 (2019): 41–54. http://dx.doi.org/10.5604/01.3001.0014.0525.

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The article considers the impact of nonmonetary factors (health) on insurance and self-insurance (against material damage) decisions. Using a two-argument utility function, we prove that the health deterioration leads to increased demand for insurance if the decision-maker is cross-prudent in health and if wealth and health are complements. Those conditions are equivalent to positivity of second and third order degree cross-derivatives of the utility function. Second part of the article considers analogous effect of health deterioration on self-insurance. In this case the result depends additionally on effectivity of self-insurance as a function of the state of the world.

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22

Hentschel, Ludger, and Clifford W. Smith. "Risks in Derivatives Markets: Implications for the Insurance Industry." Journal of Risk and Insurance 64, no. 2 (1997): 323. http://dx.doi.org/10.2307/253733.

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23

Goudenège, Ludovic, Andrea Molent, Xiao Wei, and Antonino Zanette. "Fourier-Cosine Method for Pricing and Hedging Insurance Derivatives." Theoretical Economics Letters 08, no. 03 (2018): 282–91. http://dx.doi.org/10.4236/tel.2018.83020.

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Muermann, Alexander. "Market Price of Insurance Risk Implied by Catastrophe Derivatives." North American Actuarial Journal 12, no. 3 (2008): 221–27. http://dx.doi.org/10.1080/10920277.2008.10597518.

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25

Zeng, Lixin. "Weather Derivatives and Weather Insurance: Concept, Application, and Analysis." Bulletin of the American Meteorological Society 81, no. 9 (2000): 2075–82. http://dx.doi.org/10.1175/1520-0477(2000)081<2075:wdawic>2.3.co;2.

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Chang, Carolyn W., and Jack S. K. Chang. "Doubly-Binomial Option Pricing with Application to Insurance Derivatives." Review of Pacific Basin Financial Markets and Policies 08, no. 03 (2005): 501–23. http://dx.doi.org/10.1142/s0219091505000439.

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We generalize the standard lattice approach of Cox, Ross, and Rubinstein (1976) from a fixed sum to a random sum in a subordinated process framework to accommodate pricing of derivatives with random-sum characteristics. The asset price change now is determined by two independent Bernoulli trials on information arrival/non-arrival and price up/down, respectively. The subordination leads to a nonstationary trinomial tree in calendar-time, while a time change to information-time restores the simpler binomial tree that now grows with the intensity of information arrival irrespective of the passage of calendar-time. We apply the model to price the CBOT catastrophe futures call spreads as a binomial sum of binomial prices, which illuminates the information conveyed by the randomness of catastrophe arrival. Numerical results demonstrate that the standard binomial formula that ignores random claim arrival produces largest undervaluation error for out-of-money short-maturity options when a small number of significant catastrophes may strike during the option's maturity.

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Todor, Markovic, Ivanovic Sanjin, and Todorovic Sasa. "Income insurance in sugar beet production with weather derivatives." Ratarstvo i povrtarstvo 49, no. 2 (2012): 146–50. http://dx.doi.org/10.5937/ratpov49-1132.

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28

Harrington, Scott E., Steven V. Mann, and Greg Niehaus. "Insurer Capital Structure Decisions and the Viability of Insurance Derivatives." Journal of Risk and Insurance 62, no. 3 (1995): 483. http://dx.doi.org/10.2307/253820.

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29

Kang, Hyung Cheol, and Hee Sub Byun. "Financial Characteristics and Derivatives Usage in the Life Insurance Industry." Korean Corporation Management Review 24, no. 2 (2017): 1–30. http://dx.doi.org/10.21052/kcmr.2017.24.2.01.

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Byun, Hee Sub and 조영현. "Derivatives Use and Corporate Performance in the Life Insurance Industry." Journal of Insurance and Finance 27, no. 3 (2016): 81–115. http://dx.doi.org/10.23842/jif.2016.27.3.003.

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31

Shiu, Elias S. W. "Briys, Eric, and de Varenne, François,Insurance: From Underwriting to Derivatives: Asset Liability Management in Insurance Companies." North American Actuarial Journal 7, no. 1 (2003): 88–89. http://dx.doi.org/10.1080/10920277.2003.10596081.

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Bühlmann, Hans, and Eckhard Platen. "A Discrete Time Benchmark Approach for Insurance and Finance." ASTIN Bulletin 33, no. 02 (2003): 153–72. http://dx.doi.org/10.2143/ast.33.2.503688.

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This paper proposes a consistent approach to discrete time valuation in insurance and finance. This approach uses the growth optimal portfolio as reference unit or benchmark. When used as benchmark, it is shown that all benchmarked price processes are supermartingales. Benchmarked fair price processes are characterized as martingales. No measure transformation is needed for the fair pricing of insurance policies and derivatives. The standard actuarial pricing rule is obtained as a particular case of fair pricing when the contingent claim is independent from the growth optimal portfolio. 1991 Mathematics Subject Classification: primary 90A12 secondary 60G30, 62P20 JEL Classification: G10, G13

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Bühlmann, Hans, and Eckhard Platen. "A Discrete Time Benchmark Approach for Insurance and Finance." ASTIN Bulletin 33, no. 2 (2003): 153–72. http://dx.doi.org/10.1017/s0515036100013416.

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This paper proposes a consistent approach to discrete time valuation in insurance and finance. This approach uses the growth optimal portfolio as reference unit or benchmark. When used as benchmark, it is shown that all benchmarked price processes are supermartingales. Benchmarked fair price processes are characterized as martingales. No measure transformation is needed for the fair pricing of insurance policies and derivatives. The standard actuarial pricing rule is obtained as a particular case of fair pricing when the contingent claim is independent from the growth optimal portfolio.1991 Mathematics Subject Classification: primary 90A12 secondary 60G30, 62P20JEL Classification: G10, G13

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Canter, Michael S., Joseph B. Cole, and Richard L. Sandor. "Insurance Derivatives: A New Asset Class for the Capital Markets and a New Hedging Tool for the Insurance Industry." Journal of Applied Corporate Finance 10, no. 3 (1997): 69–81. http://dx.doi.org/10.1111/j.1745-6622.1997.tb00148.x.

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35

Lai, Tze Leung. "Credit Portfolios, Credibility Theory, and Dynamic Empirical Bayes." ISRN Probability and Statistics 2012 (December 23, 2012): 1–42. http://dx.doi.org/10.5402/2012/832175.

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We begin with a review of (a) the pricing theory of multiname credit derivatives to hedge the credit risk of a portfolio of corporate bonds and (b) current approaches to modeling correlated default intensities. We then consider pricing of insurance contracts using credibility theory in actuarial science. After a brief discussion of the similarities and differences of both pricing theories, we propose a new unified approach, which uses recent advances in dynamic empirical Bayes modeling, to evolutionary credibility in insurance rate-making and default modeling of credit portfolios.

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Jung, Alan, and Cyrus Ramezani. "Insurance and reinsurance contracts as complex derivatives: Application to multiple peril policies." Journal of Risk 3, no. 4 (2001): 89–106. http://dx.doi.org/10.21314/jor.2001.048.

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Liu, Hui-Hsuan, Ariana Chang, and Yung-Ming Shiu. "Interest rate derivatives and risk exposure: Evidence from the life insurance industry." North American Journal of Economics and Finance 51 (January 2020): 100978. http://dx.doi.org/10.1016/j.najef.2019.04.021.

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Lai, Shuying, Jing Qiu, Yuechuan Tao, and Yinyan Liu. "Risk hedging strategies for electricity retailers using insurance and strangle weather derivatives." International Journal of Electrical Power & Energy Systems 134 (January 2022): 107372. http://dx.doi.org/10.1016/j.ijepes.2021.107372.

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Castellani, Davide, Laura Vigan0, and Belaynesh Tamre. "A Discrete Choice Analysis Of Smallholder Farmers' Preferences And Willingness To Pay For Weather Derivatives: Evidence From Ethiopia." Journal of Applied Business Research (JABR) 30, no. 6 (2014): 1671. http://dx.doi.org/10.19030/jabr.v30i6.8882.

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The ability of Ethiopian farmers to deal with rainfall risk is scanty due to the extension of land plots and incomplete and inefficient financial markets. Traditional drought insurance is flawed by information asymmetries, high administrative costs, and non-diversifiable risks. Insurance based on indexes is a promising alternative. Working on 120 rural households, we estimate the willingness to pay for a drought weather derivative through a mixed logit model allowing for random preferences. The results suggest that the premium, indemnity, and perceived frequency of drought are important determinants of the take-up. Apparent inconsistencies in behavior can be interpreted as rational choices.

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40

Xi, Wenwen, Dermot Hayes, and Sergio Horacio Lence. "Variance risk premia for agricultural commodities." Agricultural Finance Review 79, no. 3 (2019): 286–303. http://dx.doi.org/10.1108/afr-07-2018-0056.

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Purpose The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical realized variance and the corresponding risk-neutral expected variance. Design/methodology/approach The authors compute variance risk premiums using historical derivatives data. The authors use regression analysis and time series econometrics methods, including EGARCH and the Kalman filter, to analyze variance risk premiums. Findings There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the risk-neutral expected variance. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log risk-neutral expected variance. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns in the underlying commodity. Practical implications Commodity variance (i.e. volatility) risk cannot be hedged using futures markets. The results have practical implications for US crop insurance programs because the implied volatilities from the relevant options markets are used to estimate the price volatility factors used to generate premia for revenue insurance products such as “Revenue Protection” and “Revenue Protection with Harvest Price Exclusion.” The variance risk premia found implies that revenue insurance premia are overpriced. Originality/value The empirical results suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15 percent. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia.

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Bortoluzzi Lorenzetti, Fernanda, Edison Luiz Leismann, and Cláudio Antônio Rojo. "Derivatives or climate insurance? Risk management tools for a soybean farmer in Brazil." Revista Competitividade e Sustentabilidade 8, no. 1 (2021): 72–87. http://dx.doi.org/10.48075/comsus.v8i1.27522.

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This paper aims to analyze whether there is a difference between the cost/benefit of climate risk reduction and cost/benefit of soybean price in Palotina, Paraná, Brazil. The data were collected from bibliography, official and private documents. Climate data were analyzed based on the releases content. The methodology to analyze de future market data was the same as the B3. Options were analyzed as Black & Scholes model. Also, this paper developed the Leismann & Bortoluzzi index to analyze the protections cost/benefit. To compare mitigation costs, there were used the t student test. Limitations were about the Black & Scholes model, which does not consider subjective variables. Cost/benefit index of price protections were compared with the climate insurance index in order to test if there was a statistical difference between them. All tests allowed to infer that the indices are statistically different. This study concluded that climate and price insurance are excellent tools for rural enterprise risk management, and there was significant evidence to infer that the protections are feasible. Or rather, that the farmer is exposed to both types of risk and that the forms of mitigation are satisfactory in both cases.

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Bordenave, Charles, and Giovanni Luca Torrisi. "Monte Carlo methods for sensitivity analysis of Poisson-driven stochastic systems, and applications." Advances in Applied Probability 40, no. 02 (2008): 293–320. http://dx.doi.org/10.1017/s0001867800002536.

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We extend a result due to Zazanis (1992) on the analyticity of the expectation of suitable functionals of homogeneous Poisson processes with respect to the intensity of the process. As our main result, we provide Monte Carlo estimators for the derivatives. We apply our results to stochastic models which are of interest in stochastic geometry and insurance.

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43

Bordenave, Charles, and Giovanni Luca Torrisi. "Monte Carlo methods for sensitivity analysis of Poisson-driven stochastic systems, and applications." Advances in Applied Probability 40, no. 2 (2008): 293–320. http://dx.doi.org/10.1239/aap/1214950205.

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Abstract:

We extend a result due to Zazanis (1992) on the analyticity of the expectation of suitable functionals of homogeneous Poisson processes with respect to the intensity of the process. As our main result, we provide Monte Carlo estimators for the derivatives. We apply our results to stochastic models which are of interest in stochastic geometry and insurance.

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44

Cummins, J. David, Richard D. Phillips, and Stephen D. Smith. "Derivatives and Corporate Risk Management: Participation and Volume Decisions in the Insurance Industry." Journal of Risk and Insurance 68, no. 1 (2001): 51. http://dx.doi.org/10.2307/2678132.

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45

Roh, Myeong-Ho, and Dong-Hwan Kim. "The Effect on the Value of the Life Insurance company by Using Derivatives." Journal of the Korea Academia-Industrial cooperation Society 12, no. 7 (2011): 2982–90. http://dx.doi.org/10.5762/kais.2011.12.7.2982.

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46

Hardwick, Philip, and Mike Adams. "The Determinants of Financial Derivatives Use in the United Kingdom Life Insurance Industry." Abacus 35, no. 2 (1999): 163–84. http://dx.doi.org/10.1111/1467-6281.00039.

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Al Wakil, Anmar. "WHEN GAMBLING IS NOT WINNING: EXPLORING OPTIMALITY OF VIX TRADING UNDER THE EXPECTED UTILITY THEORY." Journal of Business Accounting and Finance Perspectives 1, no. 1 (2019): 1. http://dx.doi.org/10.26870/jbafp.2018.01.004.

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Recently, financial innovations have given rise to complex derivatives within the asset management industry. Although traditional assets pay dividends or coupons, vIX futures contracts have been partly misunderstood by unsophisticated investors, as they only provide portfolio insurance against stock market crashes. Therefore, over the calmer period 2009-2014, the most traded vIX futures exchange-traded product lost practically all of its value, ruining unexperienced investors. hence, this paper investigates appropriateness of these complex derivatives with investor's risk aversion. We address portfolio-choice optimality under uncertainty, for overlay allocations composed of equities, bonds, and vIX futures. This paper proposes a non-trivial solution based on the expected utility theory to simulate investor's behavior with risk aversion. Furthermore, it derives an investor's surprise metric defined as a welfare criterion measure, and a modelimplied risk premium defined as the insurance premium investor pays ex post to hedge. Empirical results show investing in vIX futures significantly beats traditionally diversified portfolios, but they turn to be particularly inappropriate for risk-loving investors. From the asset management perspective, this paper has practical implications since it recommends pedagogical efforts to raise investors' awareness of overlay strategies.

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Benth, Fred Espen, Asma Khedher, and Michèle Vanmaele. "Pricing of Commodity Derivatives on Processes with Memory." Risks 8, no. 1 (2020): 8. http://dx.doi.org/10.3390/risks8010008.

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Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process ξ with memory as, e.g., a Volterra equation driven by a Lévy process. Moreover, the interest rate and a risk premium ρ representing storage costs, illiquidity, convenience yield or insurance costs, are assumed to be stochastic. When the interest rate is deterministic and the risk premium is explicitly modelled as an Ornstein-Uhlenbeck type of dynamics with a mean level that depends on the same memory term as the commodity, the process ( ξ ; ρ ) has an affine structure under the pricing measure Q and an explicit expression for the option price is derived in terms of the Fourier transform of the payoff function.

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Hsu, Chia-Chen, Chia-Lin Chou, Shu-Chiung Chiang, Tzeng-Ji Chen, Li-Fang Chou, and Yueh-Ching Chou. "Urban-Rural Disparity of Generics Prescription in Taiwan: The Example of Dihydropyridine Derivatives." Scientific World Journal 2014 (2014): 1–7. http://dx.doi.org/10.1155/2014/905213.

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The aim of the current study was to investigate the urban-rural disparity of prescribing generics, which were usually cheaper than branded drugs, within the universal health insurance system in Taiwan. Data sources were the cohort datasets of National Health Insurance Research Database with claims data in 2010. The generic prescribing ratios of dihydropyridine (DHP) derivatives (the proportion of DHP prescribed as generics to all prescribed DHP) of medical facilities were examined against the urbanization levels of the clinic location. Among the total 21,606,914 defined daily doses of DHP, 35.7% belonged to generics. The aggregate generic prescribing ratio rose from 6.7% at academic medical centers to 15.3% at regional hospitals, 29.4% at community hospital, and 66.1% at physician clinics. Among physician clinics, the generic prescribing ratio in urban areas was 63.9 ± 41.0% (mean ± standard deviation), lower than that in suburban (69.6 ± 38.7%) and in rural (74.1% ± 35.3%). After adjusting the related factors in the linear regression model, generic prescribing ratios of suburban and rural clinics were significantly higher than those of urban clinics (β=0.043and 0.077;P=0.024and 0.008, resp.). The generic prescribing ratio of the most popular antihypertensive agents at a clinic was reversely associated with the urbanization level.

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Shiu, Yung-Ming. "What Motivates Insurers to Use Derivatives: Evidence from the United Kingdom Life Insurance Industry." Geneva Papers on Risk and Insurance - Issues and Practice 36, no. 2 (2011): 186–96. http://dx.doi.org/10.1057/gpp.2011.4.

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