Related papers: State Space Vasicek Model of a Longevity Bond
A Levy-driven Ornstein-Uhlenbeck process is proposed to model the evolution of the risk-free rate and default intensities for the purpose of evaluating option contracts on a credit index. Time evolution in credit markets is assumed to…
State space models are well-known for their versatility in modeling dynamic systems that arise in various scientific disciplines. Although parametric state space models are well studied, nonparametric approaches are much less explored in…
Modern decision-making in fixed income asset management benefits from intelligent systems, which involve the use of state-of-the-art machine learning models and appropriate methodologies. We conduct the first study of bond yield forecasting…
In this paper we summarize the main parts of the first exit time theory developed in connection to the life table data and the resulting theoretical and applied issues. Several new tools arise from the development of this theory and…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
Many existing mortality models follow the framework of classical factor models, such as the Lee-Carter model and its variants. Latent common factors in factor models are defined as time-related mortality indices (such as $\kappa_t$ in the…
Index-based hedging solutions are used to transfer the longevity risk to the capital markets. However, mismatches between the liability of the hedger and the hedging instrument cause longevity basis risk. Therefore, an appropriate…
Estimating customer lifetime value (CLV or LTV) is extremely important for making better business decisions. The proposed flexible proportional hazards model allows an estimation of lifetime value in contractual settings. This approach…
Objective: Machine learning (ML) predictive models are often developed without considering downstream value trade-offs and clinical interpretability. This paper introduces a cost-aware prediction (CAP) framework that combines cost-benefit…
Dependence among multiple lifetimes is a key factor for pricing and evaluating the risk of joint life insurance products. The dependence structure can be exposed to model uncertainty when available data and information are limited. We…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
This paper examines the retirement decision, optimal investment, and consumption strategies under an age-dependent force of mortality. We formulate the optimization problem as a combined stochastic control and optimal stopping problem with…
The significance of mortality modeling extends across multiple research areas, ranging from life insurance valuation to optimal lifetime decision-making. Existing approaches, such as mortality laws and factor-based models, often fall short…
There is increasing interest in flexible parametric models for the analysis of time-to-event data, yet Bayesian approaches that offer incorporation of prior knowledge remain underused. A flexible Bayesian parametric model has recently been…
This paper extends the long-term factorization of the stochastic discount factor introduced and studied by Alvarez and Jermann (2005) in discretetime ergodic environments and by Hansen and Scheinkman (2009) and Hansen (2012) in Markovian…
A new approach to inference in state space models is proposed, based on approximate Bayesian computation (ABC). ABC avoids evaluation of the likelihood function by matching observed summary statistics with statistics computed from data…
We show that the martingale component in the long-term factorization of the stochastic discount factor due to Alvarez and Jermann (2005) and Hansen and Scheinkman (2009) is highly volatile, produces a downward-sloping term structure of bond…
This paper assesses the hedge effectiveness of an index-based longevity swap and a longevity cap. Although swaps are a natural instrument for hedging longevity risk, derivatives with non-linear pay-offs, such as longevity caps, also provide…
Covered bonds are a specific example of senior secured debt. If the issuer of the bonds defaults the proceeds of the assets in the cover pool are used for their debt service. If in this situation the cover pool proceeds do not suffice for…
In this paper, we argue that some of the most popular short-term interest models have to be revisited and modified to reflect current market conditions better. In particular, we propose a modification of the popular Black-Karasinski model,…