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Cross-hedging minimum return guarantees: Basis and liquidity risks

Research output: Journal contributions › Journal articles › Research › peer-review

Standard

Cross-hedging minimum return guarantees: Basis and liquidity risks. / Ankirchner, Stefan; Schneider, Judith C.; Schweizer, Nikolaus.
In: Journal of Economic Dynamics and Control, Vol. 41, 04.2014, p. 93-109.

Research output: Journal contributions › Journal articles › Research › peer-review

Harvard

Ankirchner, S, Schneider, JC & Schweizer, N 2014, 'Cross-hedging minimum return guarantees: Basis and liquidity risks', Journal of Economic Dynamics and Control, vol. 41, pp. 93-109. https://doi.org/10.1016/j.jedc.2014.02.010

APA

Ankirchner, S., Schneider, J. C., & Schweizer, N. (2014). Cross-hedging minimum return guarantees: Basis and liquidity risks. Journal of Economic Dynamics and Control, 41, 93-109. https://doi.org/10.1016/j.jedc.2014.02.010

Vancouver

Ankirchner S, Schneider JC, Schweizer N. Cross-hedging minimum return guarantees: Basis and liquidity risks. Journal of Economic Dynamics and Control. 2014 Apr;41:93-109. doi: 10.1016/j.jedc.2014.02.010

Bibtex

@article{86f073e063b84f54992eb6c74a2bfba5,
title = "Cross-hedging minimum return guarantees: Basis and liquidity risks",
abstract = "We reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment, e.g. an external mutual fund. We analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds. We also take account of liquidity risk which arises since the insurer may need to advance funds for performing the hedge. Based on a least-squares Monte Carlo simulation, we study the economic implications of basis and liquidity risks. We demonstrate that both risks may be surprisingly high and show how the design of the contract and the hedging strategy may help to alleviate them.",
keywords = "Basis risk, Least-squares monte carlo, Liquidity risk, Periodic premia, Variable annuities, Management studies",
author = "Stefan Ankirchner and Schneider, {Judith C.} and Nikolaus Schweizer",
year = "2014",
month = apr,
doi = "10.1016/j.jedc.2014.02.010",
language = "English",
volume = "41",
pages = "93--109",
journal = "Journal of Economic Dynamics and Control",
issn = "0165-1889",
publisher = "Elsevier B.V.",

}

RIS

TY - JOUR

T1 - Cross-hedging minimum return guarantees

T2 - Basis and liquidity risks

AU - Ankirchner, Stefan

AU - Schneider, Judith C.

AU - Schweizer, Nikolaus

PY - 2014/4

Y1 - 2014/4

N2 - We reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment, e.g. an external mutual fund. We analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds. We also take account of liquidity risk which arises since the insurer may need to advance funds for performing the hedge. Based on a least-squares Monte Carlo simulation, we study the economic implications of basis and liquidity risks. We demonstrate that both risks may be surprisingly high and show how the design of the contract and the hedging strategy may help to alleviate them.

AB - We reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment, e.g. an external mutual fund. We analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds. We also take account of liquidity risk which arises since the insurer may need to advance funds for performing the hedge. Based on a least-squares Monte Carlo simulation, we study the economic implications of basis and liquidity risks. We demonstrate that both risks may be surprisingly high and show how the design of the contract and the hedging strategy may help to alleviate them.

KW - Basis risk

KW - Least-squares monte carlo

KW - Liquidity risk

KW - Periodic premia

KW - Variable annuities

KW - Management studies

UR - http://www.scopus.com/inward/record.url?scp=84897524746&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/a594518c-4903-3c11-bb84-6ce69d6c3439/

U2 - 10.1016/j.jedc.2014.02.010

DO - 10.1016/j.jedc.2014.02.010

M3 - Journal articles

AN - SCOPUS:84897524746

VL - 41

SP - 93

EP - 109

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

ER -

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