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You searched for subject:(optimal index insurance). Showing records 1 – 2 of 2 total matches.

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University of Waterloo

1. Zhang, Jingong. Risk Management with Basis Risk.

Degree: 2018, University of Waterloo

Basis risk occurs naturally in a variety of financial and actuarial applications, and it introduces additional complexity to the risk management problems. Current literature on quantifying and managing basis risk is still quite limited, and one class of important questions that remains open is how to conduct effective risk mitigation when basis risk is involved and perfect hedging is either impossible or too expensive. The theme of this thesis is to study risk management problems in the presence of basis risk under three settings: 1) hedging equity-linked financial derivatives; 2) hedging longevity risk; and 3) index insurance design. First we consider the problem of hedging a vanilla European option using a liquidly traded asset which is not the underlying asset but correlates to the underlying and we investigate an optimal construction of hedging portfolio involving such an asset. The mean-variance criterion is adopted to evaluate the hedging performance, and a subgame Nash equilibrium is used to define the optimal solution. The problem is solved by resorting to a dynamic programming procedure and a change-of-measure technique. A closed-form optimal control process is obtained under a general diffusion model. The solution we obtain is highly tractable and to the best of our knowledge, this is the first time the analytical solution exists for dynamic hedging of general vanilla European options with basis risk under the mean-variance criterion. Examples on hedging European call options are presented to foster the feasibility and importance of our optimal hedging strategy in the presence of basis risk. We then explore the problem of optimal dynamic longevity hedge. From a pension plan sponsor’s perspective, we study dynamic hedging strategies for longevity risk using standardized securities in a discrete-time setting. The hedging securities are linked to a population which may differ from the underlying population of the pension plan, and thus basis risk arises. Drawing from the technique of dynamic programming, we develop a framework which allows us to obtain analytical optimal dynamic hedging strategies to achieve the minimum variance of hedging error. For the first time in the literature, analytical optimal solutions are obtained for such a hedging problem. The most striking advantage of the method lies in its flexibility. While q-forwards are considered in the specific implementation in the paper, our method is readily applicable to other securities such as longevity swaps. Further, our method is implementable for a variety of longevity models including Lee-Carter, Cairns-Blake-Dowd (CBD) and their variants. Extensive numerical experiments show that our hedging method significantly outperforms the standard “delta” hedging strategy which is commonly adopted in the literature. Lastly we study the problem of optimal index insurance design under an expected utility maximization framework. For general utility functions, we formally prove the existence and uniqueness of optimal contract, and develop an…

Subjects/Keywords: Basis Risk; Optimal Hedging; Longevity Risk; Index Insurance; Agricultural Insurance

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APA · Chicago · MLA · Vancouver · CSE | Export to Zotero / EndNote / Reference Manager

APA (6th Edition):

Zhang, J. (2018). Risk Management with Basis Risk. (Thesis). University of Waterloo. Retrieved from http://hdl.handle.net/10012/13416

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

Chicago Manual of Style (16th Edition):

Zhang, Jingong. “Risk Management with Basis Risk.” 2018. Thesis, University of Waterloo. Accessed October 18, 2019. http://hdl.handle.net/10012/13416.

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

MLA Handbook (7th Edition):

Zhang, Jingong. “Risk Management with Basis Risk.” 2018. Web. 18 Oct 2019.

Vancouver:

Zhang J. Risk Management with Basis Risk. [Internet] [Thesis]. University of Waterloo; 2018. [cited 2019 Oct 18]. Available from: http://hdl.handle.net/10012/13416.

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

Council of Science Editors:

Zhang J. Risk Management with Basis Risk. [Thesis]. University of Waterloo; 2018. Available from: http://hdl.handle.net/10012/13416

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation


Texas A&M University

2. S?nchez Arag?n, Leonardo F. Addressing Practical Issues in Designing Weather Insurance Contracts for Risk Management Applications in Developing Countries.

Degree: 2014, Texas A&M University

In this dissertation we address practical issues in designing weather insurance contracts for risk management in developing countries in three different scenarios. First, we develop an innovative contract design strategy based on agronomic considerations that can be implemented in situations where only short and/or aggregate data series are available. We attempt to mitigate both the aggregate nature of yield data and the need for data-demanding analysis by looking at areas sharing the same growing conditions and using agronomic requirements to specify contract parameters. We find that the proposed contracts do not achieve the same degree of risk reduction as the contracts that can be constructed using no data limitations, but they do provide meaningful risk protection and typically at lower premiums. The implication is that the proposed methodology can be used to design weather derivatives for developing countries, where paucity of data often renders the conventional design approaches unworkable. The second essay aims to derive a general-form optimal payoff of an index contract that takes into account potentially nonlinear dependence between the index underlying the contract and the loss that is insured. We find that the quasi-linear contract payoff structure may not be the optimal choice if the dependence between the index and the yield/revenue is nonlinear. The implication is that the proposed methodology can help to improve risk-reducing capabilities of weather derivatives particularly in situations where the effect of weather on yield is complex and not obvious. The third essay analyzes the use of weather derivatives in managing water supply risk arising in making water allocation decisions. The specific application is developed for the Alto Rio Lerma Irrigation District (ARLID) in the state of Guanajuato in Mexico. We argue that incorporation of weather derivatives in water allocation decisions can improve overall well-being of producers and allow shift water allocations from the wet to the dry season with the assumption that the wet season farmers can cope with the risk of water shortages by using weather derivatives. We find that use of weather derivatives does lead to better water allocation policies that allow the representative farmer to reach higher levels of utility. The implication is that introduction of weather derivatives can help to improve water management decisions in developing countries where agriculture heavily depends on irrigation and can be severely affected by extreme weather events. Advisors/Committee Members: Vedenov, Dmitry (advisor), Bessler, David (committee member), Li, Qi (committee member), Welch, Mark (committee member).

Subjects/Keywords: Index insurance contracts; agronomic contract; optimal index insurance; water allocation; copula estimation; bellman equation

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APA · Chicago · MLA · Vancouver · CSE | Export to Zotero / EndNote / Reference Manager

APA (6th Edition):

S?nchez Arag?n, L. F. (2014). Addressing Practical Issues in Designing Weather Insurance Contracts for Risk Management Applications in Developing Countries. (Thesis). Texas A&M University. Retrieved from http://hdl.handle.net/1969.1/152664

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

Chicago Manual of Style (16th Edition):

S?nchez Arag?n, Leonardo F. “Addressing Practical Issues in Designing Weather Insurance Contracts for Risk Management Applications in Developing Countries.” 2014. Thesis, Texas A&M University. Accessed October 18, 2019. http://hdl.handle.net/1969.1/152664.

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

MLA Handbook (7th Edition):

S?nchez Arag?n, Leonardo F. “Addressing Practical Issues in Designing Weather Insurance Contracts for Risk Management Applications in Developing Countries.” 2014. Web. 18 Oct 2019.

Vancouver:

S?nchez Arag?n LF. Addressing Practical Issues in Designing Weather Insurance Contracts for Risk Management Applications in Developing Countries. [Internet] [Thesis]. Texas A&M University; 2014. [cited 2019 Oct 18]. Available from: http://hdl.handle.net/1969.1/152664.

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

Council of Science Editors:

S?nchez Arag?n LF. Addressing Practical Issues in Designing Weather Insurance Contracts for Risk Management Applications in Developing Countries. [Thesis]. Texas A&M University; 2014. Available from: http://hdl.handle.net/1969.1/152664

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

.