Hostname: page-component-89b8bd64d-r6c6k Total loading time: 0 Render date: 2026-05-13T05:42:21.908Z Has data issue: false hasContentIssue false
  • English
  • Français

Actuaries and Derivatives

Published online by Cambridge University Press:  10 June 2011

M.H.D. Kemp
M.H.D. Kemp
Affiliation:
Scudder Threadneedle Investments, 60 St. Mary Axe, London, EC3A 8JQ, U.K. Tel: +44 (0)20 7464 5000; Fax: +44 (0)20 7464 5466
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper draws analogies between techniques used to reserve for, control and manage derivatives and techniques used by actuaries in other fields. It concentrates on equity derivatives. It also includes a review of the factors which significantly influence the appropriate size of reserves to hold for a derivatives portfolio. These include the likelihood of market jumps, uncertainty in future market volatility and the size of transaction costs, as well as on more obvious factors like position risk.

Keywords

DerivativesReserving for DerivativesHedgingPrinciple of No ArbitrageRisk-Neutral Probability Law

Information

Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 3 , Issue 1 , 01 April 1997 , pp. 51 - 180
Copyright
Copyright © Institute and Faculty of Actuaries 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

Beenstock, M. & Brasse, V. (1986). Using options to price maturity guarantees. J.I.A. 113, 151–165.Google Scholar
Black, F. & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81, 637–654.CrossRefGoogle Scholar
Blake, D. (1989). Option pricing models. J.I.A. 116, 537–558.Google Scholar
Bookstaber, R.M. & McDonald, J.B. (1987). A general distribution for describing security price returns. Journal of Business, 60, No 3, 401–424.CrossRefGoogle Scholar
Bronshtein, I.N. & Semendyayev, K.A. (1978). Handbook of mathematics (revised, 3rd Edition). Verlag Harri Deutsch (or Van Nostrand Reinhold Company).Google Scholar
Davis, M.H.A., Panas, V.G. & Zariphopoulou, T. (1993). European option pricing with transaction costs. SIAM Journal of Control and Optimisation, 31, 470–493.CrossRefGoogle Scholar
Duffie, D. (1992). Dynamie asset pricing theory. Princeton University Press.Google Scholar
Dyson, A.C.L. & Exley, C.J. (1995). Pension fund asset valuation and investment. B.A.J. 1, 471–540.Google Scholar
Garman, & Kohlhagen, (1983). Foreign currency option values. Journal of International Money and Finance, 2, 231–237.CrossRefGoogle Scholar
Heath, D., Jarrow, R.A. & Morton, A. (1992). Bond pricing and the term structure of interest rates: a new methodology for contingent claims valuation. Econometrica, 60, 77–105.CrossRefGoogle Scholar
Hodges, S.D. & Neuberger, A. (1989). Optimal replication of contingent claims under transaction costs. Rev Fut Mkts, 8.Google Scholar
Hooker, N.D., Bulmer, J.R., Cooper, S.M., Green, P.A.G. & Hinton, P.H. (1996). Risk-based capital in general insurance. B.A.J. 2, 265–324.Google Scholar
Hull, J.C. (1992). Options, futures, and other derivative securities (2nd Edition). Prentice-Hall International.Google Scholar
Jarrow, R.A. & Turnbull, S.M. (1994). Delta, gamma and bucket hedging of interest rate derivatives. Applied Mathematical Finance, 1, 21–48.CrossRefGoogle Scholar
Kemp, M.H.D. (1995). The Black-Scholes formula. Working paper for the Group Consultatif Summer School in March 1995 run by the Institute of Actuaries.Google Scholar
Kemp, M.H.D. (1996). Asset/liability modelling for pension funds. Working paper for the Institute of Actuaries/Faculty of Actuaries 1996 Investment Conference.Google Scholar
Lee, C.M.C., Shleifer, A. & Thaler, R.H. (1990). Anomalies — closed-end mutual funds. Journal of Economic Perspectives, 4.CrossRefGoogle Scholar
LIFFE (1992a). The reporting and performance measurement of financial futures and options in investment portfolios. The London International Financial Futures and Options Exchange.Google Scholar
LIFFE (1992b). Futures and options: standards for measuring their impact on investment portfolios. The London International Financial Futures and Options Exchange.Google Scholar
Longuin, F. (1993). Booms and crashes: application of extreme value theory to the U.S. stock market. Institute of Finance and Accounting, London Business School, Working Paper No 179.Google Scholar
Maturity Guarantees Working Party (of the Institute of Actuaries and Faculty of Actuaries) (1980). Report of the Maturity Guarantees Working Party. J.I.A. 107, 101–212.Google Scholar
Mehta, S.J.B., Abbot, M.G., Addison, D.T., Dodhia, M., Hitchen, C.J., Oddie, A.J., Poulding, M.R. & Riddington, D.M. (1996). The financial management of unit trust and investment companies. B.A.J. 2, 1195–1253.Google Scholar
Merton, R.C. (1973). Theory of rational option pricing. Bell Journal of Economics and Management Science, 2, 141–183.Google Scholar
Mohamed, B. (1994). Simulations of transaction costs and optimal hedging. Applied Mathematical Finance, 1, 49–62.CrossRefGoogle Scholar
Neuberger, A.J. (1990a). Option pricing: a non-stochastic approach. London Business School Institute of Finance and Accounting, IFA Working Paper 138.Google Scholar
Neuberger, A.J. (1990b). Volatility trading. London Business School Institute of Finance and Accounting, IFA Working Paper 140.Google Scholar
Neuberger, A.J. (1992). Option replication with transaction costs — an exact solution for the pure jump process. London Business School Institute of Finance and Accounting, IFA Working Paper 183.Google Scholar
Rains, P.F. & Gardner, D. (1995). Fund management risk control. Paper presented to the Staple Inn Actuarial Society.Google Scholar
Rogers, L.C.G. & Williams, D. (1994). Diffusions, Markov processes and martingales, Vol I. John Wiley & Sons.Google Scholar
Rubinstein, M. (1996). Implied binomial trees. Journal of Finance, July 1994.Google Scholar
Scott, P.G., Elliott, S.F., Gray, L.J., Hewitson, T.W., Lechmere, D. J., Lewis, D. & Needleman, P.D. (1996). An alternative to the net premium valuation method for statutory reporting. B.A.J. 2, 527–621.Google Scholar
Sheldon, T.J. & Dodhia, M. (1994). Guaranteed equity products. Paper presented to Staple Inn Actuarial Society.Google Scholar
Smith, A.D. (1995a). Recent developments. Working paper for the Groupe Consultatif Summer School in March 1995 run by the Institute of Actuaries.Google Scholar
Smith, A.D. (1995b). Interest rate models. Working Paper for the 1995 Institute of Actuaries Derivatives Seminar.Google Scholar
Smith, A.D. (1996). How actuaries can use financial economics, B.A.J. 2, 1057–1193.Google Scholar
Vetzal, K.R. (1994). A survey of stochastic continuous time models of the term structure of interest rates. Insurance: Mathematics and Economics, 14, 139–161.Google Scholar
Whalley, A.E. & Wilmott, P. (1993). An asymptotic analysis of the Davis, Panas and Zaripho- poulou model for option pricing with transaction costs. Mathematical Institute, Oxford University, Oxford.Google Scholar
Wilkie, A.D. (1987). An option pricing approach to bonus policy. J.I.A. 114, 21–77.Google Scholar
Wilkie, A.D. (1995). More on a stochastic asset model for actuarial use. B.A.J. 1, 777–964.Google Scholar
Wise, A. (1987). Matching and portfolio selection, J.I.A. 114, 551–568.Google Scholar