News Column

Reports Outline Economic Dynamics Study Findings from University of Saarland

June 20, 2014



By a News Reporter-Staff News Editor at Economics Week -- Research findings on Economic Dynamics are discussed in a new report. According to news reporting out of Saarbrucken, Germany, by VerticalNews editors, research stated, "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."

Our news journalists obtained a quote from the research from the University of Saarland, "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."

According to the news editors, the research concluded: "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."

For more information on this research see: Cross-hedging minimum return guarantees: Basis and liquidity risks. Journal of Economic Dynamics & Control, 2014;41():93-109. Journal of Economic Dynamics & Control can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands. (Elsevier - www.elsevier.com; Journal of Economic Dynamics & Control - www.elsevier.com/wps/product/cws_home/505547)

Our news journalists report that additional information may be obtained by contacting S. Ankirchner, University of Saarland, Dept. of Math, D-66041 Saarbrucken, Germany. Additional authors for this research include J.C. Schneider and N. Schweizer.

Keywords for this news article include: Europe, Germany, Saarbrucken, Economic Dynamics

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Source: Economics Week


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