An extension of the Wang transform derived from Bühlmann’s economic premium principle for insurance risk

Kijima, Masaaki; Muromachi, Yukio

doi:10.1016/j.insmatheco.2007.10.010

Cited by 18 publications

(12 citation statements)

References 22 publications

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“…The Wang transform has been applied to many contingent claim pricing scenarios (e.g., Chen and Cox, ; Godin, Mayoral, and Morales, ), empirical estimation of the risk aversion coefficient (Jones and Zitikis, ), and derivation of optimal economic capital for insurers (Hurlimann, ). The Wang transform has also been extended to multivariate risk settings (Wang, ; Kijima and Muromachi, ).…”

Section: Literature Reviewmentioning

confidence: 99%

Managing Weather Risks: The Case of J. League Soccer Teams in Japan

Ito

Ozawa

2015

J of Risk & Insurance

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Weather-related risks present significant concerns for businesses worldwide. This article studies the impact weather conditions have on the financial performance of sports teams and proposes a hedging mechanism to manage the exposure. We analyze a unique game attendance data set supplied by the Japanese premier soccer association, J. League. Our analysis shows that precipitation has a significantly adverse impact on game attendance and team profits. We then design a hedging mechanism for this risk exposure and examine its contribution to the corporate value of the teams. In particular, we use the Wang transform model to incorporate the decision makers' risk preferences in the evaluation of the weather derivatives, where the risk aversion parameters are obtained from a survey of J. League managers. We find that the proposed weather derivatives contribute significantly to team value. Our analysis and results provide insights for weather risk management for sports teams in the international markets.

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Section: Literature Reviewmentioning

confidence: 99%

Managing Weather Risks: The Case of J. League Soccer Teams in Japan

Ito

Ozawa

2015

J of Risk & Insurance

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“…The distribution for L(t) can then be numerically inverted back from ϕ(s|t) using, e.g., the fast Fourier transform. 14 14 Alternatively, we can apply the bucketing method developed by Hull and White (2004).…”

Section: Change Of Measures From P To Qmentioning

confidence: 99%

“…In fact, some empirical studies suggest to use Student t distributions, whose CDF is denoted by t ν (x), with ν = 3 to 7 degrees of freedom for return distributions of financial and insurance assets (see, e.g., Platen and Stahl (2003) and Wang (2004)). In order to overcome this deficiency, Wang (2002) proposed the following two-parameter transformation: 2) and reported that (5.2) is much better to fit, although the two-parameter transform is not consistent with the economic premium principle (2.2) (see Kijima and Muromachi (2008)). …”

Section: Fat-tail Distributionmentioning

confidence: 99%

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Pricing of CDOs based on the multivariate Wang transform

Kijima

Motomiya²,

Suzuki³

2010

Journal of Economic Dynamics and Control

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Abstract. This paper shows that the one-factor Gaussian copula model, the standard market model for valuing CDO's, can be derived from the multivariate Wang transform, which is consistent with Bühlmann's equilibrium pricing model, whence it has a sound economic interpretation. The Gaussian copula model is then extended within the Bühlmann's framework. Unlike the existing models, our model calibrates the parameter associated with risk aversion index of the representative investor, not the correlation parameter. A t-copula model is also considered to describe the fat-tail distribution observed in the actual markets.

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“…Distortion functions distort the real-world probability measure. Goovaerts and Laeven (2008), Kijima and Muromachi (2008) and Wang (2007) pointed out that a connection exists between the Esscher-Girsanov transform and the Wang transform.…”

Section: Introductionmentioning

confidence: 99%