Studies from Pennsylvania State University (Penn State) Have Provided New Data on Operations Science (Indifference Pricing of Insurance-linked Securities In a Multi-period Model)

2021 FEB 25 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Research findings on Science - Operations Science are discussed in a new report. According to news reporting from University Park, Pennsylvania, by NewsRx journalists, research stated, “Insurance-linked securities (ILS) have recently become an important risk transfer mechanism to help insurers and reinsurers transfer catastrophe risks to the capital market. We employ the utility indifference approach to establish a pricing framework for a representative agent who trades an ILS with payoff linked to an insurance risk process and a reference rate process.”

Financial supporters for this research include Australian Government through the Australian Research Council, University of Iowa, The Society of Actuaries (SOA) James C. Hickman Scholar program.

The news correspondents obtained a quote from the research from Pennsylvania State University (Penn State), “The agent, while investing in a financial market composed of traditional financial instruments, discovers her indifference prices of the ILS by weighing the ILS trade on her exponential utility. The problem has been studied extensively, but mainly in one-period models that are best suited for zero-coupon instruments. In view of the prevalence of ILS with interim payments, we extend the study to a multi-period model by working with time 0 equivalent values and solving a multi-period optimization problem. We offer insights into issues such as coherence and time consistency of the ask and bid indifference prices obtained.”

According to the news reporters, the research concluded: “Finally, we conduct a sensitivity analysis of the prices against certain risk parameters.”

This research has been peer-reviewed.

For more information on this research see: Indifference Pricing of Insurance-linked Securities In a Multi-period Model. European Journal of Operational Research, 2021;289(2):793-805. European Journal of Operational Research can be contacted at: Elsevier, Radarweg 29, 1043 Nx Amsterdam, Netherlands. (Elsevier - www.elsevier.com; European Journal of Operational Research - http://www.journals.elsevier.com/european-journal-of-operational-research/)

Our news journalists report that additional information may be obtained by contacting Zhongyi Yuan, Pennsylvania State University (Penn State), Smeal College of Business, 362 Business Bldg, University Park, PA 16802, United States. Additional authors for this research include Haibo Liu and Qihe Tang.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1016/j.ejor.2020.07.028. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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