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1 [CT086]

[CT086]

[00510] Optimal Impact Portfolios with General Dependence and Marginals

Session Date & Time : 3C (Aug.23, 13:20-15:00)
Type : Contributed Talk
Abstract : Impact investing typically involves ranking and selecting assets based on a non-financial impact factor, such as the environmental, social, and governance (ESG) score and the prospect of developing a disease-curing drug. We develop a framework for constructing optimal impact portfolios and quantifying their financial performances. Under general bivariate distributions of the impact factor and residual returns from a multi-factor asset-pricing model, the construction and performance of optimal impact portfolios depend critically on the dependence structure (copula) between the two, which reduces to a correlation under normality assumptions. More generally, we explicitly derive the optimal portfolio weights under any copula. In particular, we investigate two widely-used copulas—the Gaussian copula and the Archimedean copula family, and find that the optimal weights depend on the tail characteristics of the copula. In addition, when the marginal distribution of residual returns is skewed or heavy-tailed, assets with the most extreme impact factors have lower weights than non-extreme assets due to their high risk. Our framework requires the estimation of only a constant number of parameters as the number of assets grow, an advantage over traditional Markowitz portfolios. Overall, these results provide a recipe for constructing and quantifying the performance of optimal impact portfolios with arbitrary dependence structures and return distributions.
Classification : 62P05, 91B05, 91G15, 91G10, 91B76, Copula, Portfolio Theory
Author(s) :
- Andrew W Lo (Massachusetts Institute of Technology)
- Lan Wu (Peking University)
- Ruixun Zhang (Peking University)
- Chaoyi Zhao (Peking University)

[02034] Relation between transaction costs and search frictions in optimal maximization

Session Date & Time : 3C (Aug.23, 13:20-15:00)
Type : Contributed Talk
Abstract : We consider an optimal investment problem to maximize expected power-utility of random terminal wealth in a market with two types of illiquidity: transaction costs and search frictions. We suppose an investor trades only at arrival times of Poisson process, and pays proportional transaction costs for purchasing or selling stocks. We characterize a unique optimal trading strategy and provide asymptotic expansions on small transaction costs and small search frictions for boundaries of no-trade region and value function.
Classification : 62P05, 49N90, Financial mathematics, Stochastic analysis
Author(s) :
- Tae Ung Gang (KAIST Stochastic Analysis and Application Research Center)
- Jin Hyuk Choi (UNIST)

[02093] British Call Option On Stocks under Stochastic Interest Rate

Session Date & Time : 3C (Aug.23, 13:20-15:00)
Type : Contributed Talk
Abstract : The closed form expression for the price of the British put and call options have long been established where both interest rate and volatility are assumed to be constant. In reality, these assumptions do not fully reflect the variable nature of the financial markets. In this paper, we derived a closed form expression for the arbitrage-free price of the British call option by assuming stochastic interest rate which follows the Cox-Ingersoll-Ross model and constant volatility.
Classification : 62P05
Author(s) :
- Felipe Jr Raypan Sumalpong (Mindanao State University - Iligan Institute of Technology)
- Kreanne Falcasantos (Mindanao State University - Iligan Institute of Technology)

[02348] Multi-day Value-at-Risk estimation by GARCH and Extreme Value Theory

Session Date & Time : 3C (Aug.23, 13:20-15:00)
Type : Contributed Talk
Abstract : The conventional VaR models have been unable to predict huge losses by market prices because these underestimate the probability of extreme price fluctuations. To overcome this problem, McNeil and Frey introduced a two-step approach combining the GARCH model and EVT. In this study, we investigate the estimation of multi-day VaR based on a bootstrapping simulation approach with GARCH-EVT, as well as perform back-testing in order to evaluate its ability to provide appropriate multi-day VaR estimation.
Classification : 62P05
Author(s) :
- Ichiro Nishi (Tokio Marine Holdings, Inc.)

[02559] Range-Based Volatility for Range Mortality-at-Risk Forecast

Session Date & Time : 3C (Aug.23, 13:20-15:00)
Type : Contributed Talk
Abstract : In this study, we aim to utilize range-based volatility to model the volatility of the mortality rates and compare its empirical results with the realized volatility. We take the case of the downward trend for mortality rates that are often called longevity risk, specifically for annuity providers and pension funds. Moreover, we use the range value-at-risk concept as a risk measurement to forecast the mortality risk that we call the range mortality-at-risk (RMaR).
Classification : 62P05, 60G10, 60G25, 60H30, 91G70
Author(s) :
- Darin Sabrina (Institut Teknologi Bandung)
- Nurhayati Nurhayati (Institut Teknologi Bandung)
- Arief Hakim (Institut Teknologi Bandung)
- Khreshna Syuhada (Institut Teknologi Bandung)

[02576] Estimating Elicitable Risk Measures for Dependent Risk Model

Session Date & Time : 3D (Aug.23, 15:30-17:10)
Type : Contributed Talk
Abstract : In this research, we investigated a risk model with a dependent relationship i.e. the insurer's net cost under the combination of proportional and stop-loss reinsurance. The dependence structure is described by Sarmanov's bivariate exponential distribution and some copula-based bivariate exponential distributions. The risk model is determined using a scoring function on some elicitable risk measures. The results show that the dependence parameter and the probability of claim occurrence have effects on that risk model.
Classification : 62P05, 91G70, 91G05, 90C30, 62P20
Author(s) :
- Suci Sari (Institut Teknologi Bandung)
- Arief Hakim (Institut Teknologi Bandung)
- Khreshna Syuhada (Institut Teknologi Bandung)

[02577] Risk Measure-Based Optimal Combination of Proportional and Limited Stop-Loss Reinsurance

Session Date & Time : 3D (Aug.23, 15:30-17:10)
Type : Contributed Talk
Abstract : In this paper, we aim to combine two reinsurance contracts, namely, proportional and limited stop-loss reinsurance. Under the resulting combined proportional and limited stop-loss reinsurance, we find the survival functions of the loss retained by the insurer and the loss ceded to the reinsurer. We then construct a reinsurance optimization problem determined based on the risk measure of the insurer’s total loss. In particular, we employ the well-known Value-at-Risk (VaR) risk measure and its extension.
Classification : 62P05, 91G70, 91G05, 90C30, 62P20
Author(s) :
- Lailatul Mufaridho (Institut Teknologi Bandung)
- Suci Sari (Institut Teknologi Bandung)
- Arief Hakim (Institut Teknologi Bandung)
- Khreshna Syuhada (Institut Teknologi Bandung)

[02601] Fractional GBM-ARMA-GARCH Models for Aggregate Risk Forecasting in Stock Markets

Session Date & Time : 3D (Aug.23, 15:30-17:10)
Type : Contributed Talk
Abstract : Risk prediction in finance has become essential nowadays to secure the fund of enterprises. This study presents a new predictive model by integrating fractional geometric Brownian motion (GBM) with a stochastic component modeled through autoregressive-moving average (ARMA) and heteroscedastic (GARCH) models. The model is used to forecast the aggregate portfolio risk in the stock market using Value-at-Risk. We also consider the dependence, through copula, between assets in the portfolio to make the model more flexible.
Classification : 62P05, 91B05, 91G15, 91G70, 62M10
Author(s) :
- Elonasari Elonasari (Institut Teknologi Bandung)
- Venansius Tjahjono (Institut Teknologi Bandung)
- Arief Hakim (Institut Teknologi Bandung)
- Khreshna Syuhada (Institut Teknologi Bandung)

[02319] Parameter estimation of the Richards model in multi-wave epidemic cases

Session Date & Time : 3D (Aug.23, 15:30-17:10)
Type : Industrial Contributed Talk
Abstract : The Richards model with changepoint detection can model multi-wave infectious disease transmission. Next, choose the best parameter estimation method from non-linear least squares and genetic algorithm to accurately predict COVID-19 cases in Indonesia and Japan. Genetic algorithm predictions outperform non-linear least squares. A genetic algorithm only needs a range for the initial value, while non-linear least squares need an exact value. The government and health facilities can use prediction results to prevent infectious disease epidemics.
Classification : 62P10, 92B15, 92B05
Author(s) :
- Faihatuz Zuhairoh (Universitas Gadjah Mada )
- Dedi Rosadi (Universitas Gadjah Mada )
- Adhitya Ronnie Effendie (Universitas Gadjah Mada )

[02089] SPATIAL CLUSTERIZATION OF EARTHQUAKE DISTRIBUTION DATA USING DBSCAN APPROACH

Session Date & Time : 3D (Aug.23, 15:30-17:10)
Type : Contributed Talk
Abstract : This research aimed to group regions based on the density of earthquakes using Density-Based Spatial Clustering of Application with Noise (DBSCAN). The DBSCAN algorithm uses a combination of parameters: Eps and MinPts. The Eps determines the maximum distance of cluster member points from the cluster center. The MinPts is used to limit the number of points that are members of the cluster within the Eps radius. This method is validated with silhouette values.
Classification : 62P12
Author(s) :
- Achmad Fauzan (Universitas Islam Indonesia)