Do Jumps Matter in the Long Term? A Tale of Two Horizons. Issue 1 (2nd January 2022)
- Record Type:
- Journal Article
- Title:
- Do Jumps Matter in the Long Term? A Tale of Two Horizons. Issue 1 (2nd January 2022)
- Main Title:
- Do Jumps Matter in the Long Term? A Tale of Two Horizons
- Authors:
- Bégin, Jean-François
Boudreault, Mathieu - Abstract:
- Abstract : Economic scenario generators (ESGs) for equities are important components of the valuation and risk management process of life insurance and pension plans. Because the resulting liabilities are very long-lived and the short-term performance of the assets backing these liabilities may trigger important losses, it is thus a desired feature of an ESG to replicate equity returns over such horizons. In light of this horizon duality, we investigate the relevance of jumps in ESGs to replicate dynamics over different horizons and compare their performance to popular models in actuarial science. We show that jump-diffusion models cannot replicate higher moments if estimated with the maximum likelihood. Using a generalized method of moments–based approach, however, we find that simple jump-diffusion models have an excellent fit overall (moments and the entire distribution) at different timescales. We also investigate three typical applications: the value of $1 accumulated with no intermediate monitoring, a solvency analysis with frequent monitoring, and a dynamic portfolio problem. We find that jumps have long-lasting effects that are difficult to replicate otherwise, so, yes, jumps do matter in the long term.
- Is Part Of:
- North American actuarial journal. Volume 26:Issue 1(2022)
- Journal:
- North American actuarial journal
- Issue:
- Volume 26:Issue 1(2022)
- Issue Display:
- Volume 26, Issue 1 (2022)
- Year:
- 2022
- Volume:
- 26
- Issue:
- 1
- Issue Sort Value:
- 2022-0026-0001-0000
- Page Start:
- 82
- Page End:
- 101
- Publication Date:
- 2022-01-02
- Subjects:
- Life insurance -- Research -- North America -- Periodicals
Actuarial science -- North America -- Periodicals
Web sites
Electronic journals
368.010973 - Journal URLs:
- http://www.soa.org/news-and-publications/publications/journals/naaj/naaj-detail.aspx ↗
http://www.tandfonline.com/loi/uaaj20 ↗
http://proquest.umi.com/pqdlink?Ver=1&Exp=04-23-2008&REQ=3&Cert=QcIhOmMdLEmP208E4Zn5c6Qs%2fVbfYEQ1Kcswm85p3d1aMKmozAXpypuD1AxiiI70&Pub=47814 ↗
http://www.tandfonline.com/ ↗ - DOI:
- 10.1080/10920277.2020.1837636 ↗
- Languages:
- English
- ISSNs:
- 2325-0453
- Deposit Type:
- Legaldeposit
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- Available online (eLD content is only available in our Reading Rooms) ↗
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- British Library DSC - BLDSS-3PM
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- 21205.xml