Type of Document Dissertation Author Chen, Hua Author's Email Address huachen1977@gmail.com URN etd-05072008-145401 Title CONTINGENT CLAIM PRICING WITH APPLICATIONS TO FINANCIAL RISK MANAGEMENT Degree Ph.D. Department Risk Management and Insurance Advisory Committee
Advisor Name Title Dr. Samuel H. Cox Committee Chair Dr. Eric Ulm Committee Member Dr. Richard MacMinn Committee Member Dr. Shaun Wang Committee Member Keywords
- Financial Risk Management
- Real Option Valuation
- Mortality Securitization
- Reverse Mortgage
- Contingent Claim Pricing
Date of Defense 2008-04-18 Availability unrestricted Abstract CONTINGENT CLAIM PRICING WITH APPLICATIONS TOFINANCIAL RISK MANAGEMENT
BY
Hua Chen
2008
Committee Chair: Samuel H. Cox and Shaun Wang
Major Academic Unit: Department of Risk Management and Insurance
This is a multi-essay dissertation designed to explore the contingent claim pricing theory with non-tradable underlying assets, with emphasis on its applications to insurance and risk management. In the first essay, I apply the real option pricing theory and dynamic programming methods to address problems in the area of operational risk management. Particularly, I develop a two-stage model to help firms determine optimal switching triggers in the event of an influenza epidemic. In the second essay, I examine mortality securitization in an incomplete market framework. I build a jump-diffusion process into the original Lee-Carter model and explore alternative model with transitory versus permanent jump effects. I discuss pricing difficulties of the Swiss Re mortality bond (2003) and use the Wang transform to account for correlations of the mortality index over time. In the third essay, I study the valuation of the non-recourse provision in reverse mortgages. I model the various risks embedded in the HECM program and apply the conditional Esscher transform to price the non-recourse provision. I further examine the premium structure of HECM loans and investigate whether insurance premiums are adequate to cover expected claims.
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