Browsing by Author "Sam, Charles"
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- ItemOpen AccessMean-Variance mixture model for calibrating loss given default (LGD) of a credit portfolio(2021-11) Sam, Charles; Ambagaspitiya, Rohana; Ambagaspitiya, Rohana; Scollnik, David; de Leon, Alexander; Fapojuwo, Abraham; Bégin, Jean-FrançoisWe study the sensitivity of Value-at-Risk (VaR) and Tail-Value-at-Risk (TVaR) of credit portfolio of defaultable obligors to the tail fatness of the loss given default latent variable distribution. We consider a static structural model where obligors default and loss given default (LGD) latent variables have a common systematic risk factor. We propose the use of the Normal-Variance mixture model to model the LGD latent variable to account for certain random external risks, such as the collapse of Lehman Brothers Holdings Inc in 2008 which resulted in instability in the financial sector. We derive an analytical expression for finding the asymptotic portfolio loss rate. We also propose two importance sampling algorithms for finding conditional tail probabilities for the portfolio loss. Our approach is unique in two aspects. First, we capture the dependence between default and LGD. Second, we make LGD values to be random and between zero and one. We also show that our importance sampling algorithms are asymptotically optimal.
- ItemOpen AccessNatural Hedging of Longevity Risk with Mortality Key Rate Durations(2016) Sam, Charles; Ambagaspitiya, Rohana Shantha; Scollnik, David; Qiu, Chao; Fapojuwo, Abraham OlatunjiUnanticipated increase in life expectancy (longevity risk) of policy holders expose annuity providers to financial risk over a period of time. In order to measure the sensitivity of the actuarial present value to shifts in mortality rates for two portfolios for USA male: the Lee-Carter model is used to forecast future mortality rates with mortality data from mortality.org; and the term structure of interest rates are estimated using the Nelson-Siegel-Svensson model. Mortality key rate durations are proposed as a measure of the sensitivity of the actuarial present value due to the nonparallel shifts in mortality rates. The objectives for this thesis are to determine the best weight of surplus of life insurance to use for hedging against longevity risk, and ascertain how the mortality key rates periods should be selected for the two portfolios in order to have weighted surplus greater than zero using the natural hedging approach.