arXiv subjects

Kenneth R. Jackson

Publications and source records attributed to Kenneth R. Jackson.

6 recordsLinked to original sources

arXiv2021

Backward Simulation of Multivariate Mixed Poisson Processes

The simulation of correlated multivariate Poisson processes with negative correlation between their components has many important applications in Finance, Insurance, Geophysics, and many other areas of applied probability. Introduced in our earlier work, the Backward Simulation (BS) approach to the simulation of correlated multivariate Poisson processes is able to capture a wide range of correlation, including extreme positive and extreme negative correlation, that is not possible with other approaches such as the forward simulation approach. Moreover, the BS approach enables simple and efficient generation of sample paths of correlated multivariate Poisson processes. In this work, we extend the BS approach to multivariate mixed Poisson processes.

stat.CO↗

arXiv2017

Correlated Multivariate Poisson Processes and Extreme Measures

Multivariate Poisson processes have many important applications in Insurance, Finance, and many other areas of Applied Probability. In this paper we study the backward simulation approach to modelling multivariate Poisson processes and analyze the connection to the extreme measures describing the joint distribution of the processes at the terminal simulation time.

stat.ME↗

arXiv2017

A Spatial Interpolation Framework for Efficient Valuation of Large Portfolios of Variable Annuities

Variable Annuity (VA) products expose insurance companies to considerable risk because of the guarantees they provide to buyers of these products. Managing and hedging these risks requires insurers to find the value of key risk metrics for a large portfolio of VA products. In practice, many companies rely on nested Monte Carlo (MC) simulations to find key risk metrics. MC simulations are computationally demanding, forcing insurance companies to invest hundreds of thousands of dollars in computational infrastructure per year. Moreover, existing academic methodologies are focused on fair valuation of a single VA contract, exploiting ideas in option theory and regression. In most cases, the computational complexity of these methods surpasses the computational requirements of MC simulations. Therefore, academic methodologies cannot scale well to large portfolios of VA contracts. In this paper, we present a framework for valuing such portfolios based on spatial interpolation. We provide a comprehensive study of this framework and compare existing interpolation schemes. Our numerical results show superior performance, in terms of both computational efficiency and accuracy, for these methods compared to nested MC simulations. We also present insights into the challenge of finding an effective interpolation scheme in this framework, and suggest guidelines that help us build a fully automated scheme that is efficient and accurate.

q-fin.CP↗

arXiv2016

Efficient Valuation of SCR via a Neural Network Approach

As part of the new regulatory framework of Solvency II, introduced by the European Union, insurance companies are required to monitor their solvency by computing a key risk metric called the Solvency Capital Requirement (SCR). The official description of the SCR is not rigorous and has lead researchers to develop their own mathematical frameworks for calculation of the SCR. These frameworks are complex and are difficult to implement. Recently, Bauer et al. suggested a nested Monte Carlo (MC) simulation framework to calculate the SCR. But the proposed MC framework is computationally expensive even for a simple insurance product. In this paper, we propose incorporating a neural network approach into the nested simulation framework to significantly reduce the computational complexity in the calculation. We study the performance of our neural network approach in estimating the SCR for a large portfolio of an important class of insurance products called Variable Annuities (VAs). Our experiments show that the proposed neural network approach is both efficient and accurate.

q-fin.CP↗

arXiv2016

A Neural Network Approach to Efficient Valuation of Large Portfolios of Variable Annuities

Managing and hedging the risks associated with Variable Annuity (VA) products require intraday valuation of key risk metrics for these products. The complex structure of VA products and computational complexity of their accurate evaluation have compelled insurance companies to adopt Monte Carlo (MC) simulations to value their large portfolios of VA products. Because the MC simulations are computationally demanding, especially for intraday valuations, insurance companies need more efficient valuation techniques. Recently, a framework based on traditional spatial interpolation techniques has been proposed that can significantly decrease the computational complexity of MC simulation (Gan and Lin, 2015). However, traditional interpolation techniques require the definition of a distance function that can significantly impact their accuracy. Moreover, none of the traditional spatial interpolation techniques provide all of the key properties of accuracy, efficiency, and granularity (Hejazi et al., 2015). In this paper, we present a neural network approach for the spatial interpolation framework that affords an efficient way to find an effective distance function. The proposed approach is accurate, efficient, and provides an accurate granular view of the input portfolio. Our numerical experiments illustrate the superiority of the performance of the proposed neural network approach compared to the traditional spatial interpolation schemes.

q-fin.CP↗

arXiv2007

Option Valuation using Fourier Space Time Stepping

It is well known that the Black-Scholes-Merton model suffers from several deficiencies. Jump-diffusion and Levy models have been widely used to partially alleviate some of the biases inherent in this classical model. Unfortunately, the resulting pricing problem requires solving a more difficult partial-integro differential equation (PIDE) and although several approaches for solving the PIDE have been suggested in the literature, none are entirely satisfactory. All treat the integral and diffusive terms asymmetrically and are difficult to extend to higher dimensions. We present a new, efficient algorithm, based on transform methods, which symmetrically treats the diffusive and integrals terms, is applicable to a wide class of path-dependent options (such as Bermudan, barrier, and shout options) and options on multiple assets, and naturally extends to regime-switching Levy models. We present a concise study of the precision and convergence properties of our algorithm for several classes of options and Levy models and demonstrate that the algorithm is second-order in space and first-order in time for path-dependent options.

cs.CE↗