The impact of longevity and investment risk on a portfolio of life insurance liabilities

In this paper we assess the joint impact of biometric and financial risk on the market valuation of life insurance liabilities. We consider a stylized, contingent claim based model of a life insurance company issuing participating contracts and subject to default risk, as pioneered by Briys and de Varenne (Geneva Pap Risk Insur Theory 19(1):53–72, 1994, J Risk Insur 64(4):673–694, 1997), and build on their model by explicitly introducing biometric risk and its components, namely diversifiable and systematic risk. The contracts considered include pure endowments, deferred whole life annuities and guaranteed annuity options. Our results stress the predominance of systematic over diversifiable risk in determining fair participation rates. We investigate the interaction of contract design, market regimes and mortality assumptions, and show that, particularly for lifelong benefits, the choice of the participation rate must be very conservative if longevity improvements are foreseeable

Multivariate Lévy Models by Linear Combination: Estimation

In this paper we propose a simple and effective two-step procedure to estimate the multivariate Lévy model introduced by Ballotta and Bonfiglioli (2012). We assess our estimation approach via simulations, comparing the results with those obtained through a standard but more computationally intensive one-step maximum likelihood estimation. The proposed method is then applied to the computation of the intra-horizon Value at Risk for a portfolio of assets following the model under consideration

The valuation of guaranteed lifelong withdrawal benefit options in variable annuity contracts and the impact of mortality risk

n light of the growing importance of the variable annuities market, in this paper we introduce a theoretical model for the pricing and valuation of guaranteed lifelong withdrawal benefit (GLWB) options embedded in variable annuity products. As the name suggests, this option offers a lifelong withdrawal guarantee; therefore, there is no limit on the total amount that is withdrawn over the term of the policy because if the account value becomes zero while the insured is still alive, he or she continues to receive the guaranteed amount annually until death. Any remaining account value at the time of death is paid to the beneficiary as a death benefit. We offer a specific framework to value the GLWB option in a market-consistent manner under the hypothesis of a static withdrawal strategy, according to which the withdrawal amount is always equal to the guaranteed amount. The valuation approach is based on the decomposition of the product into living and death benefits. The model makes use of the standard no-arbitrage models of mathematical finance, which extend the Black-Scholes framework to insurance contracts, assuming the fund follows a geometric Brownian motion and the insurance fee is paid, on an ongoing basis, as a proportion of the assets. We develop a sensitivity analysis, which shows how the value of the product varies with the key parameters, including the age of the policyholder at the inception of the contract, the guaranteed rate, the risk-free rate, and the fund volatility. We calculate the fair fee, using Monte Carlo simulations under different scenarios. We give special attention to the impact of mortality risk on the value of the option, using a flexible model of mortality dynamics, which allows for the possible perturbations by mortality shock of the standard mortality tables used by practitioners. Moreover, we evaluate the introduction of roll-up and step-up options and the effect of the decision to delay withdrawing. Empirical analyses are performed, and numerical results are provided

Convertible bond valuation in a jump diffusion setting with stochastic interest rates

This paper proposes an integrated pricing framework for convertible bonds, which comprises firm value evolving as an exponential jump diffusion, correlated stochastic interest rates movements and an efficient numerical pricing scheme. By construction, the proposed stochastic model fits in the framework of affine jump diffusion processes of Duffie et al. [Econometrica, 2000, 68, 1343–1376] with tractable behaviour. We define the firm’s optimal call policy and investigate its impact on the computed convertible bond prices. We illustrate the performance of the numerical scheme and highlight the effects originated by the inclusion of jumps, stochastic interest rates and a non-zero correlation structure between firm value and interest rates

Jumps and stochastic volatility in crude oil prices and advances in average option pricing

Crude oil derivatives form an important part of the global derivatives market. In this paper, we focus on Asian options which are favoured by risk managers being effective and cost-saving hedging instruments. The paper has both empirical and theoretical contributions: we conduct an empirical analysis of the crude oil price dynamics and develop an accurate pricing setup for arithmetic Asian options with discrete and continuous monitoring featuring stochastic volatility and discontinuous underlying asset price movements. Our theoretical contribution is applicable to various commodities exhibiting similar stylized properties. We here estimate the stochastic volatility model with price jumps as well as the nested model with omitted jumps to NYMEX WTI futures vanilla options. We find that price jumps and stochastic volatility are necessary to fit options. Despite the averaging effect, we show that Asian options remain sensitive to jump risk and that ignoring the discontinuities can lead to substantial mispricings

Efficient pricing of ratchet equity-indexed annuities in a variance-gamma economy

In this paper we propose a new method for approximating the price of arithmetic Asian options in a Variance-Gamma (VG) economy, which is then applied to the problem of pricing equityindexed annuity contracts. The proposed procedure is an extension to the case of a VG-based model of the moment-matching method developed by Turnbull and Wakeman and Levy for the pricing of this class of path-dependent options in the traditional Black-Scholes setting. The accuracy of the approximation is analyzed against RQMC estimates for the case of ratchet equityindexed annuities with index averaging

Cushioned and high-speed centrifugation improve sperm recovery rate but affect the quality of fresh and cryopreserved feline spermatozoa

The development of endoscopic transcervical catheterization (ETC) in the queen increases the interest in handling fresh and cryopreserved feline semen. The ETC requires a small volume of the insemination dose with a high concentration, not easily reached with the actual frozen technique in this species. Centrifugation is widely used to concentrate spermatozoa for several purposes, but this process is detrimental to spermatozoa. This study verified the effects of conventional and cushioned centrifugation on fresh and cryopreserved feline spermatozoa. To this, semen was collected from 20 toms, grouped in seven pools and diluted. After dilution, the pools were divided into two aliquots, the first used for centrifugation on fresh semen, and the second, after freezing, on cryopreserved semen. Centrifugation regimens were: conventional at 500xg, conventional at 1000xg, and cushioned (iodixanol) at 1000xg. The sperm recovery rate was calculated for the three centrifugation regimens, and sperm kinematics, membrane and acrosome integrity, and plasma membrane stability on viable spermatozoa were assessed as endpoints. The data reported in this study showed that the centrifugation at 500xg resulted in negligible effects on both fresh and cryopreserved spermatozoa, but the lower recovery rate (62.4 +/- 3.1 % and 60.2 +/- 1.6 %, respectively) underlines the loss of a large proportion of spermatozoa, unfavourable in a species with small total sperm ejaculated. On the other hand, the centrifugation at 1000xg improved the recovery rate (86.9 +/- 4.3 % and 89.8 +/- 2.4 % in fresh and cryopreserved samples, respectively), but was more deleterious for feline spermatozoa, especially in cryopreserved samples (i.e. total motility of 40.7 +/- 5.4 % compared with 57.2 +/- 9.8 % in cryopreserved uncentrifuged samples, P < 0.05), resulting in artificial insemination doses of lower quality. The recovery rate in cushioned centrifugation appeared less efficient, likely due to the small volume of feline samples, which makes difficult the separation of sperm pellet and cushioned fluid. Interestingly, in cryopreserved samples centrifuged at 1000xg the number of viable spermatozoa with membrane destabilization (31.3 +/- 3.2 %) was greater than uncentrifuged (4.1 +/- 0.7 %, P < 0.05) and those centrifuged at 500xg (9.8 +/- 1.3 %, P < 0.05), suggesting modifications induced by the cryopreservation amplifies centrifugation sublethal damage on feline spermatozoa. Cushioned centrifugation on cryopreserved samples showed kinematics similar to uncentrifuged samples, but higher viable spermatozoa with membrane destabilization (37.4 +/- 3.4 % vs 4.1 +/- 0.7 %; P < 0.05). In felines, g-force is crucial for sperm recovery rate during centrifugation, with better results at 1000xg; on the other hand, greater g-forces could have a significant impact on the quality of feline insemination dose, especially in cryopreserved samples

Eliciting Implicit Awareness in Alzheimer’s Disease and Mild Cognitive Impairment: A Task-Based Functional MRI Study

Background: Recent models of anosognosia in dementia have suggested the existence of an implicit component of self-awareness about one’s cognitive impairment that may remain preserved and continue to regulate behavioral, affective, and cognitive responses even in people who do not show an explicit awareness of their difficulties. Behavioral studies have used different strategies to demonstrate implicit awareness in patients with anosognosia, but no neuroimaging studies have yet investigated its neural bases. Methods: Patients with amnestic mild cognitive impairment and dementia due to Alzheimer’s disease underwent functional magnetic resonance imaging (fMRI) during the execution of a color-naming task in which they were presented with neutral, negative, and dementia-related words (Dementia-Related Emotional Stroop). Results: Twenty-one patients were recruited: 12 were classified as aware and 9 as unaware according to anosognosia scales (based on clinical judgment and patient-caregiver discrepancy). Behavioral results showed that aware patients took the longest time to process dementia-related words, although differences between word types were not significant, limiting interpretation of behavioral results. Imaging results showed that patients with preserved explicit awareness had a small positive differential activation of the posterior cingulate cortex (PCC) for the dementia-related words condition compared to the negative words, suggesting attribution of emotional valence to both conditions. PCC differential activation was instead negative in unaware patients, i.e., lower for dementia-related words relative to negative-words. In addition, the more negative the differential activation, the lower was the Stroop effect measuring implicit awareness. Conclusion: Posterior cingulate cortex preserved response to dementia-related stimuli may be a marker of preserved implicit self-awareness

Shear flow affects selective monocyte recruitment into MCP-1-loaded scaffolds

Novel cardiovascular replacements are being developed by using degradable synthetic scaffolds, which function as a temporary guide to induce neotissue formation directly in situ. Priming of such scaffolds with fast-releasing monocyte chemoattractant protein-1 (MCP-1) was shown to improve the formation of functional neoarteries in rats. However, the underlying mechanism has not been clarified. Therefore, the goal of this study was to investigate the effect of a burst-release of MCP-1 from a synthetic scaffold on the local recruitment of circulating leucocytes under haemodynamic conditions. Herein, we hypothesized that MCP-1 initiates a desired healing cascade by recruiting favourable monocyte subpopulations into the implanted scaffold. Electrospun poly(e-caprolactone) scaffolds were loaded with fibrin gel containing various doses of MCP-1 and exposed to a suspension of human peripheral blood mononuclear cells in static or dynamic conditions. In standard migration assay, a dose-dependent migration of specific CD14+ monocyte subsets was observed, as measured by flow cytometry. In conditions of pulsatile flow, on the other hand, a marked increase in immediate monocyte recruitment was observed, but without evident selectivity in monocyte subsets. This suggests that the selectivity was dependent on the release kinetics of the MCP-1, as it was overruled by the effect of shear stress after the initial burst-release. Furthermore, these findings demonstrate that local recruitment of specific MCP-1-responsive monocytes is not the fundamental principle behind the improved neotissue formation observed in long-term in vivo studies, and mobilization of MCP-1-responsive cells from the bone marrow into the bloodstream is suggested to play a predominant role in vivo