Download or read book Portfolio Optimization Under Solvency II written by Alexander Braun and published by . This book was released on 2013 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the issue of optimizing an insurance company's asset allocation in the context of portfolio theory when the firm needs to adhere to the market risk capital requirements of Solvency II. The discussion starts with a brief review of the standard formula and the introduction of a parsimonious partial internal model. Subsequently, we estimate empirical risk-return profiles for the main asset classes held by insurers and run a quadratic optimization program to derive nondominated frontiers with budget, short-sale, and investment constraints. We then compute the respective capital charges under both solvency models and identify those efficient portfolio compositions that are permitted for an exogenously given amount of equity. Finally, we consider a systematically selected set of inefficient portfolios and check their admissibility, too. Our results document that the standard formula is unable to distinguish investments on the basis of risk-return profiles and does hence not produce economically sensible results. Therefore, the introduction of Solvency II in its current form might cause severe asset management biases in the European insurance sector.

Download or read book Portfolio Optimization Under Solvency Constraints written by Sujith Asanga and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop portfolio optimization problems to a non-life insurance company for finding the minimum capital required, which simultaneously satisfy solvency and portfolio performance constraints. Motivated by standard insurance regulations, we consider solvency capital requirements based on three criteria: Ruin Probability, Conditional Value-at-Risk and Expected Policyholder Deficit ratio. We propose a novel semi-parametric formulation for each problem and explore the advantages of implementing this methodology over other potential approaches. When liabilities follow a Log-Normal distribution, we provide sufficient conditions for convexity for all our problems. Using different expected Return on Capital target levels, we construct efficient frontiers when portfolio assets are modelled with a special class of multivariate GARCH models. We found that the correlation between assets plays an important role in the behaviour of the optimal capital required and the portfolio structure. The stability and out-of-sample performance of our optimal solutions are empirically tested with respect to both, the solvency requirement and the portfolio performance, through a double rolling window estimation exercise. Our results indicate that a time-varying correlation model outperforms the constant and no-correlation counterparts.

Download or read book Robust Portfolio Optimization and Management written by Frank J. Fabozzi and published by John Wiley & Sons. This book was released on 2007-04-27 with total page 513 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Robust Portfolio Optimization and Management "In the half century since Harry Markowitz introduced his elegant theory for selecting portfolios, investors and scholars have extended and refined its application to a wide range of real-world problems, culminating in the contents of this masterful book. Fabozzi, Kolm, Pachamanova, and Focardi deserve high praise for producing a technically rigorous yet remarkably accessible guide to the latest advances in portfolio construction." --Mark Kritzman, President and CEO, Windham Capital Management, LLC "The topic of robust optimization (RO) has become 'hot' over the past several years, especially in real-world financial applications. This interest has been sparked, in part, by practitioners who implemented classical portfolio models for asset allocation without considering estimation and model robustness a part of their overall allocation methodology, and experienced poor performance. Anyone interested in these developments ought to own a copy of this book. The authors cover the recent developments of the RO area in an intuitive, easy-to-read manner, provide numerous examples, and discuss practical considerations. I highly recommend this book to finance professionals and students alike." --John M. Mulvey, Professor of Operations Research and Financial Engineering, Princeton University

Download or read book Efficient Asset Management written by Richard O. Michaud and published by Oxford University Press. This book was released on 2008-03-03 with total page 207 pages. Available in PDF, EPUB and Kindle. Book excerpt: In spite of theoretical benefits, Markowitz mean-variance (MV) optimized portfolios often fail to meet practical investment goals of marketability, usability, and performance, prompting many investors to seek simpler alternatives. Financial experts Richard and Robert Michaud demonstrate that the limitations of MV optimization are not the result of conceptual flaws in Markowitz theory but unrealistic representation of investment information. What is missing is a realistic treatment of estimation error in the optimization and rebalancing process. The text provides a non-technical review of classical Markowitz optimization and traditional objections. The authors demonstrate that in practice the single most important limitation of MV optimization is oversensitivity to estimation error. Portfolio optimization requires a modern statistical perspective. Efficient Asset Management, Second Edition uses Monte Carlo resampling to address information uncertainty and define Resampled Efficiency (RE) technology. RE optimized portfolios represent a new definition of portfolio optimality that is more investment intuitive, robust, and provably investment effective. RE rebalancing provides the first rigorous portfolio trading, monitoring, and asset importance rules, avoiding widespread ad hoc methods in current practice. The Second Edition resolves several open issues and misunderstandings that have emerged since the original edition. The new edition includes new proofs of effectiveness, substantial revisions of statistical estimation, extensive discussion of long-short optimization, and new tools for dealing with estimation error in applications and enhancing computational efficiency. RE optimization is shown to be a Bayesian-based generalization and enhancement of Markowitz's solution. RE technology corrects many current practices that may adversely impact the investment value of trillions of dollars under current asset management. RE optimization technology may also be useful in other financial optimizations and more generally in multivariate estimation contexts of information uncertainty with Bayesian linear constraints. Michaud and Michaud's new book includes numerous additional proposals to enhance investment value including Stein and Bayesian methods for improved input estimation, the use of portfolio priors, and an economic perspective for asset-liability optimization. Applications include investment policy, asset allocation, and equity portfolio optimization. A simple global asset allocation problem illustrates portfolio optimization techniques. A final chapter includes practical advice for avoiding simple portfolio design errors. With its important implications for investment practice, Efficient Asset Management 's highly intuitive yet rigorous approach to defining optimal portfolios will appeal to investment management executives, consultants, brokers, and anyone seeking to stay abreast of current investment technology. Through practical examples and illustrations, Michaud and Michaud update the practice of optimization for modern investment management.

Download or read book On a Portfolio Optimization Problem Under GARCH Type Models and Solvency Constraints written by Jiachen Wang and published by . This book was released on 2017 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis discusses the portfolio optimization problem under solvency constraints, based on S. Asanga et al. "Portfolio optimization under solvency constraints: a dynamical approach"[1]. Models of the gross return process and claim liability, and methods to solve the optimization problems are both borrowed from the paper. Under the background that insurance companies make profits mainly by investing the premiums and capital from shareholders on portfolio products, this thesis models the net loss of a company by the difference between gross return process of the investment and claim payments. The data used in this thesis are with the same period as the paper but downloaded from Yahoo, so there are subtle differences. The goal is to minimize the capital from shareholders under certain constraints built on three risk measures: ruin probability, conditional Value-at-Risk and expected policyholder deficit. We use univariate GARCH(1,1), Constant Conditional Correlation(CCC)-GARCH and Dynamic Conditional Correlation(DCC)-GARCH to model the gross return process considering volatility clustering and the covariance matrix of multiple assets in a portfolio. The claim's payments are modeled by a lognormal distribution to guarantee the convexity of the optimization problems. The approach to solving the constrained optimization problems is nonlinear interior point method and analyzing efficient frontier. This thesis seeks to solve it using r, by trying package 'nloptr' for constrained optimization, unfortunately, some functions have some bugs and others do not get a good result.

Download or read book Portfolio Optimization written by Michael J. Best and published by CRC Press. This book was released on 2010-03-09 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt: Eschewing a more theoretical approach, Portfolio Optimization shows how the mathematical tools of linear algebra and optimization can quickly and clearly formulate important ideas on the subject. This practical book extends the concepts of the Markowitz "budget constraint only" model to a linearly constrained model. Only requiring elementary linear algebra, the text begins with the necessary and sufficient conditions for optimal quadratic minimization that is subject to linear equality constraints. It then develops the key properties of the efficient frontier, extends the results to problems with a risk-free asset, and presents Sharpe ratios and implied risk-free rates. After focusing on quadratic programming, the author discusses a constrained portfolio optimization problem and uses an algorithm to determine the entire (constrained) efficient frontier, its corner portfolios, the piecewise linear expected returns, and the piecewise quadratic variances. The final chapter illustrates infinitely many implied risk returns for certain market portfolios. Drawing on the author’s experiences in the academic world and as a consultant to many financial institutions, this text provides a hands-on foundation in portfolio optimization. Although the author clearly describes how to implement each technique by hand, he includes several MATLAB® programs designed to implement the methods and offers these programs on the accompanying CD-ROM.

Download or read book Portfolio Optimization and Performance Analysis written by Jean-Luc Prigent and published by CRC Press. This book was released on 2007-05-07 with total page 451 pages. Available in PDF, EPUB and Kindle. Book excerpt: In answer to the intense development of new financial products and the increasing complexity of portfolio management theory, Portfolio Optimization and Performance Analysis offers a solid grounding in modern portfolio theory. The book presents both standard and novel results on the axiomatics of the individual choice in an uncertain framework, cont

Download or read book Reinsurance as Capital Optimization Tool Under Solvency II written by Eugene N. Gurenko and published by . This book was released on 2013 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper compares solvency capital requirements under Solvency I and Solvency II for a sample mid-size insurance portfolio. According to the results of a study, changing the solvency capital regime from Solvency I to Solvency II will lead to a substantial additional solvency capital requirement that might represent a heavy burden for the company's shareholders. One way to reduce the capital requirement under Solvency II is to increase reinsurance protection, which will reduce the net retained risk exposure and hence also the solvency capital requirement. Therefore, this paper proposes an extended reinsurance structure that, under Solvency II, brings the capital requirement back to the level of that required under Solvency I. In a step-by-step approach, the paper demonstrates the extent of solvency relief attained by the insurer by applying different possible adjustments in the reinsurance structure. To evaluate the efficiency of reinsurance as the solvency capital relief instrument, the authors introduce a cost-of-capital based approach, which puts the achieved capital relief in relation to the costs of extending the reinsurance protection. This approach allows a direct comparison of reinsurance as a capital relief instrument with debt instruments available in the capital market. With the help of the introduced approach, the authors show that the best capital relief efficiency under all examined reinsurance alternatives is achieved when a financial quota share contract is chosen for proportional reinsurance"--Abstract.

Download or read book Portfolio Management with Heuristic Optimization written by Dietmar G. Maringer and published by Springer Science & Business Media. This book was released on 2005-12-12 with total page 246 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio Management with Heuristic Optimization consist of two parts. The first part (Foundations) deals with the foundations of portfolio optimization, its assumptions, approaches and the limitations when "traditional" optimization techniques are to be applied. In addition, the basic concepts of several heuristic optimization techniques are presented along with examples of how to implement them for financial optimization problems. The second part (Applications and Contributions) consists of five chapters, covering different problems in financial optimization: the effects of (linear, proportional and combined) transaction costs together with integer constraints and limitations on the initital endowment to be invested; the diversification in small portfolios; the effect of cardinality constraints on the Markowitz efficient line; the effects (and hidden risks) of Value-at-Risk when used the relevant risk constraint; the problem factor selection for the Arbitrage Pricing Theory.

Download or read book Modern Portfolio Optimization with NuOPTTM S PLUS and S BayesTM written by Bernd Scherer and published by Springer Science & Business Media. This book was released on 2007-09-05 with total page 422 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years portfolio optimization and construction methodologies have become an increasingly critical ingredient of asset and fund management, while at the same time portfolio risk assessment has become an essential ingredient in risk management. This trend will only accelerate in the coming years. This practical handbook fills the gap between current university instruction and current industry practice. It provides a comprehensive computationally-oriented treatment of modern portfolio optimization and construction methods using the powerful NUOPT for S-PLUS optimizer.

Download or read book Portfolio Optimization Under Risk Constraints written by Kevin Riedmüller and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Portfolio Optimization with Different Information Flow written by Caroline Hillairet and published by Elsevier. This book was released on 2017-02-10 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio Optimization with Different Information Flow recalls the stochastic tools and results concerning the stochastic optimization theory and the enlargement filtration theory.The authors apply the theory of the enlargement of filtrations and solve the optimization problem. Two main types of enlargement of filtration are discussed: initial and progressive, using tools from various fields, such as from stochastic calculus and convex analysis, optimal stochastic control and backward stochastic differential equations. This theoretical and numerical analysis is applied in different market settings to provide a good basis for the understanding of portfolio optimization with different information flow. Presents recent progress of stochastic portfolio optimization with exotic filtrations Shows you how to apply the tools of the enlargement of filtrations to resolve the optimization problem Uses tools from various fields from enlargement of filtration theory, stochastic calculus, convex analysis, optimal stochastic control, and backward stochastic differential equations

Download or read book Executive s Guide to Solvency II written by David Buckham and published by John Wiley & Sons. This book was released on 2010-09-23 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: A straightforward guide to the evolution, benefits, and implementation of Solvency II Providing a guide to the evolution, practice, benefits, and implementation of Solvency II, Executive′s Guide to Solvency II deftly covers this major European regulation which ensures that insurers can meet their risk–based liabilities over a one–year period to a 99.5% certainty. Part of the Wiley and SAS Business series, this book will guide you through Solvency II, especially if you need to understand the subtleties of Solvency II and risk–based capital in basic business language. Among the topics covered in this essential book are: Background to Solvency II Learning from the Basel Approach The Economic Balance Sheet Internal Models People, Process, and Technology Business Benefits of Solvency II Executive′s Guide to Solvency II has as its aim an explanation for executives, practitioners, consultants, and others interested in the Solvency II process and the implications thereof, to understand how and why the directive originated, what its goals are, and what some of the complexities are. There is an emphasis on what in practice should be leveraged upon to achieve implementation, specifically data, processes, and systems, as well as recognition of the close alignment demanded between actuaries, the risk department, IT, and the business itself.

Download or read book Infrastructure Investments written by Fabian Regele and published by Springer. This book was released on 2017-11-16 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fabian Regele examines the appropriateness of the current regulatory treatment and the general suitability of unlisted infrastructure equity investments for the investment purposes of insurance companies. The employed valuation model of a stylized infrastructure asset delivers sound economic results and is consistent with the typical J-curve effect of the cumulative cash flows of these assets. In the context of a portfolio optimization, the infrastructure asset improves the insurance company’s solvency situation by lowering its default probability and increasing its solvency ratio. In regard to the asset’s risk contribution, there is a time-variant occurrence of certain risk channels during its lifecycle that leads to substantial differences in the risk exposure of the insurance company.

Download or read book Portfolio Optimization Under Conditional Value at Risk Constraints written by Yannick Paukner and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Equity Portfolio Optimization Under Parameter Uncertainty written by Joseph Maduane Mataboge and published by . This book was released on 2016 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Responsible Investments in Life Insurers Optimal Portfolios Under Solvency Constraints written by Sebastian Schlütter and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Socially responsible investing (SRI) continues to gain momentum in the financial market space for various reasons, starting with the looming effect of climate change and the drive toward a net-zero economy. Existing SRI approaches have included environmental, social, and governance (ESG) criteria as a further dimension to portfolio selection, but these approaches focus on classical investors and do not account for specific aspects of insurance companies. In this paper, we consider the stock selection problem of life insurance companies. In addition to stock risk, our model set-up includes other important market risk categories of insurers, namely interest rate risk and credit risk. In line with common standards in insurance solvency regulation, such as Solvency II, we measure risk using the solvency ratio, i.e. the ratio of the insurer's market-based equity capital to the Value-at-Risk of all modeled risk categories. As a consequence, we employ a modification of Markowitz's Portfolio Selection Theory by choosing the "solvency ratio" as a downside risk measure to obtain a feasible set of optimal portfolios in a three-dimensional (risk, return, and ESG) capital allocation plane. We find that for a given solvency ratio, stock portfolios with a moderate ESG level can lead to a higher expected return than those with a low ESG level. A highly ambitious ESG level, however, reduces the expected return. Because of the specific nature of a life insurer's business model, the impact of the ESG level on the expected return of life insurers can substantially differ from the corresponding impact for classical investors.