This is a three year project. The purpose of this project is to establish new risk indices which have properties of monotonicity with respect to stochastic dominance and to apply these risk indices in finance and insurance.For the first year project, I will develop a new risk index which could be viewed as a general form of the modified risk indices proposed by Aumann and Serrano (2008, JPE), Foster and Hart (2009, JPE) and Bali et al. (2011, MS). The capital pricing equilibrium based on the new index will be derived. I will further evaluate the performance between my model and others such as the traditional mean-variance CAPM and the newly developed award-risk models.For the second year project, the new risk index derived in the first year will be applied in analyzing optimal insurance contract. My project will be the first one in the insurance literature to examine the optimal insurance contract by adopting a risk index which integrates the risk measures proposed by Aumann and Serrano (2008, JPE), Foster and Hart (2009, JPE) and Bali et al. (2011, MS). Comparative statics will be studied. Furthermore, I will also use simulation to find out the parameters in the new index to maximize the social welfare.For the third year project, I will establish another risk index and then apply it to construct efficient frontier in portfolio allocation problem. This risk index not only satisfies monotonicity with respect to stochastic dominance but also satisfies monotonicity with respect to generalized almost stochastic dominance. Furthermore, I will use the US data to show how to construct efficient frontier according to my new index as the risk measure.
|Effective start/end date||1/08/17 → 31/07/18|
UN Sustainable Development Goals
In 2015, UN member states agreed to 17 global Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all. This project contributes towards the following SDG(s):
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