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The traditional role of insurers is to insure idiosyncratic risk through products such as life annuities, life insurance, and health insurance. With the decline of private defined benefit plans and government pension plans around the world, insurers are increasingly taking on the role of insuring market risk through minimum return guarantees. Insurers also use more complex capital management tools such as derivatives, off-balance-sheet reinsurance, and securities lending. Financial Economics of Insurance provides a unified framework to study the impact of financial and regulatory frictions as well as imperfect competition on all insurer decisions. The book covers all facets of the modern insurance sector, guiding readers through its complexities with empirical facts, institutional details, and quantitative modeling.

Insurance --- Money market. Capital market

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Open interest, or the amount of contracts outstanding in futures markets, has remarkable power to forecast commodity, currency, bond, and stock prices. Changes in open interest are highly pro-cyclical and predict asset-price fluctuations better than a number of alternative variables including past prices. In commodity markets, rising open interest predicts rising commodity prices, falling bond prices, and a rising short rate. In currency markets, rising open interest predicts appreciation of foreign currencies relative to the U.S. dollar. In bond and stock markets, rising open interest predicts falling bond prices and rising stock prices, respectively. We offer a theoretical explanation of our empirical findings. Open interest is a more informative signal of future economic activity and inflation than past prices because of hedging demand and downward-sloping demand curves in futures markets.

Zonder onderwerpscode: economie

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Zonder onderwerpscode: economie

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We develop a life-cycle consumption and portfolio choice model in which households have nonhomothetic utility over two types of goods, basic and luxury. We calibrate the model to match the cross-sectional and life-cycle variation in the basic expenditure share in the Consumer Expenditure Survey. The model explains the degree to which the portfolio share in risky assets rises in wealth in the cross-section of households in the Survey of Consumer Finances. For a given household, the portfolio share can fall in response to an increase in wealth, even though the model implies decreasing relative risk aversion.

Zonder onderwerpscode: economie