The Fifth School in Risk Management, Insurance, and Finance took place on March 17–19, 2016 at the Department of Economics at the European University at St. Petersburg.Dominique E. Beckers (KULeuven, Belgium), Roger J.A. Laeven (UAmsterdam, the Netherlands), and Oleg Rusakov (St. Petersburg State University, Russia) introduced the audience to such topics as «Advanced Aspects of Pensions», «Risk Management: Principles and Recent Developments», and «Temporal Dependence in Financial Models».
The Programme
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March 17th, 2016: Insurance day (6 hours)
Advanced Aspects of Pensions by Professor Dominique E. Beckers, The Katholieke Universiteit Leuven, Belgium |
Summary of the Course
This short course covered two major topics.
The first one concerns occupational pensions stress tests, quantitative assessments and risk capital methodology for pension funds. The aim of the exercise which EIOPA — the European Insurance and Occupational Pension Authority — requested in 2015 for pension funds of 17 member-states including Belgium, was to identify potential vulnerabilities of occupational schemes against adverse market scenarios and the increase in life expectancy. Along with an introduction on risk capital methodology, an insight will be given during this session into the practical experiences which were encountered by those who participated in this exercise. Furthermore the results globally for Europe and all participants, published end of January 2016, will be commented on. But the main focus in this presentation is to show the quantitative yet simplified technique in practice and the overall context to be taken in to account. Conceptually the link with the holistic balance sheet principles underlying the new future proposed risk-based prudential regime, will be put forward. Although these principles have been severely criticized by many stakeholders over time, we could see in class whether this criticism is really justified.
The second part of the course is about calculation of vested rights and the disclosure in the pension communication to the plan participant. EIOPA has published very recently a Consultation Paper on Good Practices on Communication Tools and Channels for communicating to occupational pension scheme members. The important concepts of Pension Communication will be introduced with a specific focus on vested social rights — in opposite to funding techniques — into the Pension Communication. There are surely learning points in this context, illustrated by the intentions of EIOPA. As an illustration, we introduce on a general basis possible actuarial calculation principles for vested rights in DB and DC schemes and show their relevancy for a good pension benefit statement.
More detail and reading links are here (pdf).
Contents
I. Occupational pensions stress tests, quantitative assessments and risk capital methodology for Pension funds
1.1 The pension risk challenge and risk identification
1.2 Governance is key in each pension risk management system
1.3 The quantification issue and the limits for risk taking
1.4 Risk capital methodology
1.5 Stress testing & scenario analysis for use in solvency testing and regulatory purposes
1.6 Introduction to the holistic balance sheet
1.7 Criticism on the holistic balance sheet
II. Calculation of vested rights and the disclosure in the pension communication to the plan participant
2.1 The pension communication paradox
2.2 Communication properties and the integration issue
2.3 Good practices on information provision (for DC schemes)
2.4 Further aspects of the integration issue and digitalisation
2.5 Social regulation & vested rights as a cornerstone for pension communication
2.6 A numerical example of actuarial calculation for vesting rights in DB & DC schemes
2.7 Pension benefit statements and digitalisation capabilities
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March 18th, 2016: Risk Management day (6 hours)
Risk Measurement: Principles and Recent Developments by Professor Roger J.A. Laeven, University of Amsterdam, the Netherlands |
Summary of the Course
Starting with the St. Petersburg paradox of Daniel Bernoulli, almost 300 years later the theory of risk measurement has developed into one of the most advanced and fascinating areas of actuarial science, insurance and finance. This short course covers basic principles and recent developments in the theory of risk measurement and will discuss applications to portfolio choice, pricing and risk sharing. Special attention is paid to the microeconomic foundations of actuarial and financial risk measurement. More detail and reading links are here (pdf).
Contents
1. Introduction
I. Basic Principles
2. Law of Large Numbers
3. Risk Pooling and Risk Spreading
II. From Basic Principles to Recent Developments
4. Measures of Risk
4.1 Risk Aversion
4.2 Ambiguity Aversion
5. Dynamic Risk Measurement
6. Optimal Portfolio Choice and Indifference Valuation
7. Optimal Risk Sharing
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March 19th, 2016: Finance day (6 hours)
Temporal Dependence in Financial Models by Professor Oleg Rusakov, St. Petersburg State University, Russia |
Summary of the Course
Constructing an adequate model for description of time behaviour of various quantities is a very important problem in economics and finance. In particular, in order to build a viable forecast of a quantity one needs firstly to establish a set of estimation formulae that take into account the dynamics of the corresponding quantity.
In the first part of this short course we consider deterministic and stochastic models of interest rates, discuss the effect that Poissonian flows have on bond pricing, examine a concept of a «residual dependence» for financial instruments. In this connection we also study a number of generalisations of the classical Vasicek model, constructing a class of random processes of an Ornstein–Uhlenbeck type.
In the second part of the course we discuss a construction of a geometric Brownian motion process as a limiting case for a binary process. We apply this model in a non-traditional way: our aim is to obtain objective and well-grounded in mathematical principles estimations of rational prices in the real estate market. We shall also see a new role for the Sharpe ratio, which it plays in a process of sequential comparisons of various quantities.
Contents
1. Introduction. Deterministic models
I. Basic Stochasics Principles
2. Laws of Large Numbers, absence of after-effects, characterisations of distributions
3. Subordinations (random changes of time) for random processes
4. Poissonian and pseudo-Poissonian processes
5. The Ornstein–Uhlenbeck process and its characterisation properties
6. Multi-agent model for the Ornstein–Uhlenbeck type processes
7. Case of random intensity of the leading Poisson process
8. The O. Vasicek model and its generalisations. Numerical examples
9. Random contraction or random projection? How AR(1) model underestimates risks which follow from the past
II. Geometric Brownian Motion (gBm) and Log Normal distribution
10. A binary scheme and the Cox–Ross–Rubinstein model
11. Limit transition from the Cox–Ross–Rubinstein model to the Black–Scholes model: the functional limit theorem gives convergence of continuous functionals of prices
12. Binary process of sequential comparisons of values and gBm as a limit
13. The initial value choice problem and the Sharpe ratio in this relation
14. Applications to the real estate market and examples
The Organising Committee
- Jan Dhaene (KULeuven)
- Andrey Kudryavtsev (EUSP)
- Maxim Bouev (EUSP)
- Lina Korotkova (EUSP)
Partners and Supporters
The School greatly benefited from generous donations from
Information about the School was circulated via
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Photo Report of the School 2016
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