Marco Corazza Claudio Pizzi Editors Mathematical and Statistical Methods for Actuarial Sciences and Finance MAF 2012 123 Springer Mathematical and Statistical Methods for Actuarial Sciences and Finance · Marco Corazza Claudio Pizzi Editors Mathematical and Statistical Methods for Actuarial Sciences and Finance Springer Editors MarcoCorazza ClaudioPizzi Ca’FoscariUniversityofVenice Ca’FoscariUniversityofVenice DepartmentofEconomics DepartmentofEconomics Venice,Italy Venice,Italy ISBN978-3-319-02498-1 ISBN978-3-319-02499-8(eBook) DOI10.1007/978-3-319-02499-8 SpringerChamHeidelbergNewYorkDordrechtLondon LibraryofCongressControlNumber:2013945795 ©SpringerInternationalPublishingSwitzerland2014 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart ofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations, recitation,broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmission orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordis- similarmethodologynowknownorhereafterdeveloped.Exemptedfromthislegalreservationare briefexcerptsinconnectionwithreviewsorscholarlyanalysisormaterialsuppliedspecificallyfor thepurposeofbeingenteredandexecutedonacomputersystem,forexclusiveusebythepurchaser ofthework.Duplicationofthispublicationorpartsthereofispermittedonlyundertheprovisions oftheCopyrightLawofthePublisher’slocation,initscurrentversion,andpermissionforusemust alwaysbeobtainedfromSpringer.PermissionsforusemaybeobtainedthroughRightsLinkatthe CopyrightClearanceCenter.ViolationsareliabletoprosecutionundertherespectiveCopyright Law. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispub- licationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. Whiletheadviceandinformationinthisbookarebelievedtobetrueandaccurateatthedateof publication,neithertheauthorsnortheeditorsnorthepublishercanacceptanylegalresponsibility foranyerrorsoromissionsthatmaybemade.Thepublishermakesnowarranty,expressorimplied, withrespecttothematerialcontainedherein. Cover-Design:SimonaColombo,Milan,Italy Typesetting:PTP-Berlin,ProtagoTEX-ProductionGmbH,Germany SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Preface Thisvolumeisacollectionofreferredpapersselectedfromthemorethanonehun- dredandtwentypresentedattheInternationalMAFConference2012–Mathemat- icalandStatisticalMethodsforActuarialSciencesandFinance. The conference was held in Venice (Italy), from April 10 to 12, 2012, at the prestigious Cavalli Franchetti palace of the Istituto Veneto di Scienze, Lettere ed Arti, on the Grand Canal, very near to the Rialto bridge. It was organized by the DepartmentofEconomicsoftheUniversityCa’FoscariofVenice(Italy),withthe collaboration of the Department of Economics and Statistics of the University of Salerno(Italy). This conference was the fifth in an international biennial series, which began in 2004. It was born out of a brilliant idea by colleagues – and friends – of the DepartmentofEconomicsandStatisticsoftheUniversityofSalerno:theideawas that a cooperation between mathematicians and statisticians working in actuarial sciences,ininsuranceandinfinancecouldimprovetheresearchonthesetopics. Theproofofthemeritsofthisideaisthewideparticipationinalltheconferences. Inparticular,withreferencetothe2012event,therewere: • about 180 attendants, including academics, professionals, researchers and stu- dents; • morethan120acceptedcommunications,organizedin40parallelsessions; • attendantsandauthorsfrommorethan20countries:Australia,Austria,Belgium, Canada,Denmark,Egypt,France,Germany,GreatBritain,Greece,Israel,Italy, Japan,Mexico,NewZealand,Portugal,RepublicofDjibouti,SierraLeone,Spain, SwitzerlandandtheUSA; • 4prestigiousplenarykeynotelecturesdeliveredby: – ProfessorGiuseppeCavaliereoftheUniversityofBologna(Italy):“Unitroots inboundedfinancialtimeseries”; – ProfessorPaulEmbrechtsoftheETHZurich(Switzerland):“Extreme-quantile trackingforfinancialtimeseries”; – Professor Dominique Guégan of the University Paris1, Panthéon, Sorbonne (France): “A quantitative finance and actuarial framework for risk manage- ment”; – ProfessorWolfgangRunggaldieroftheUniversityofPadua(Italy):“Onsto- chasticfilteringapplicationsinfinance”; vi Preface • aninstructiveplenarylesson,mainlyaddressedtoPh.D.studentsandyoungre- searchers, delivered by Professor Chris Adcock of the University of Shefield (GreatBritain):“Doingresearchandgettingitpublished”. Generally,thepaperspublishedinthisvolumepresenttheoreticalandmethodolog- icalcontributionsandtheirapplicationsinrealcontexts. With respect to the theoretical and methodological contributions, some of the considered areas of investigation include: actuarial models; alternative testing ap- proaches; behavioral finance; clustering techniques; coherent andno-coherent risk measures;credit-scoringapproaches;dataenvelopmentanalysis;dynamicstochas- tic programming; financial contagion models; financial ratios; intelligent financial tradingsystems;mixturenormalityapproaches;MonteCarlo-basedmethodologies; multi-criteriamethods;nonlinearparameterestimationtechniques;nonlinearthresh- oldmodels;particleswarmoptimization;performancemeasures;portfoliooptimiza- tion; pricing methods for structured and non-structured derivatives; risk manage- ment;skeweddistributionanalysis;solvencyanalysis;stochasticactuarialvaluation methods;variableselectionmodels;timeseriesanalysistools. Asregardstheapplications,theyarerelatedtorealproblemsassociated,among theothers,to:banks;collateralizedfundobligations;creditportfolios;defined-benefit pension plans; double-indexed pension annuities; efficient-market hypothesis; ex- changemarkets;financialtimeseries;firms;hedgefunds;non-lifeinsurancecompa- nies;returnsdistributions;sociallyresponsiblemutualfunds;unit-linkedcontracts. Ofcourse,successofthisconferencewouldnothavebeenpossiblewithoutthe valuablehelpofoursponsors(inalphabeticalorder): • AMASES:AssociazioneperlaMatematicaApplicataalleScienzeEconomiche eSociali; • CentroInterdipartimentalesuCulturaeEconomiadellaGlobalizzazione; • DepartmentofEconomicsoftheUniversityCa’FoscariofVenice; • DepartmentofEconomicsandStatisticsoftheUniversityofSalerno; • DIAMANSIMS.p.A.; • IstitutoVenetodiScienzeLettereeArti; • NethunS.p.A; • RegionedelVeneto; • VENISS.p.A. Further, we would also like to express our deep gratitude to the members of the ScientificandOrganizingCommittees,totheCenterofQuantitativeEconomicsof theCa’FoscariUniversityofVenice,totheWebmaster,andtoallthepeoplewhose collaborationcontributedtothesuccessoftheconferenceMAF2012. Finally, we are pleased to inform you that the organizing machine of the next editionisalreadyworking:theconferenceMAF2014willbeheldinVietrisulMare (Italy),ontheenchantingAmalfiCoast,fromApril22to24,2014(formoredetails visitthewebsitehttp://www.maf2014.unisa.it/). Welookforwardtoseeingyou. Venice,August2013 MarcoCorazza ClaudioPizzi Contents WeakFormEfficiencyofSelectedEuropeanStockMarkets:Alternative TestingApproaches.............................................. 1 GiuseppinaAlbano,MicheleLaRoccaandCiraPerna AnEmpiricalComparisonofVariableSelectionMethodsinCompeting RisksModel.................................................... 13 AlessandraAmendola,MarialuisaRestainoandLucaSensini AComparisonBetweenDifferentNumericalSchemesfortheValuation ofUnit-LinkedContractsEmbeddingaSurrenderOption ............. 27 AnnaRitaBacinello,PietroMillossovichandAlvaroMontealegre Dynamic Tracking Error with Shortfall Control Using Stochastic Programming................................................... 41 DianaBarroandElioCanestrelli Firm’sVolatilityRiskUnderMicrostructureNoise ................... 55 FlaviaBarsottiandSimonaSanfelici SociallyResponsibleMutualFunds:AnEfficiencyComparisonAmong theEuropeanCountries .......................................... 69 AntonellaBassoandStefaniaFunari FittingFinancialReturnsDistributions:AMixtureNormalityApproach. 81 RiccardoBramanteandDiegoZappa Single-NameConcentrationRiskMeasurementsinCreditPortfolios .... 89 RaffaellaCalabreseandFrancescoPorro BifactorialPricingModels:LightandShadowsinCorrelationRole ..... 99 RosaCocozzaandAntonioDeSimone DynamicStrategiesforDefinedBenefitPensionPlansRiskManagement. 111 IlariaColivicchi,GabriellaPiscopoandEmanueleVannucci viii Contents Particle Swarm Optimization for Preference Disaggregation in MulticriteriaCreditScoringProblems.............................. 119 MarcoCorazza,StefaniaFunariandRiccardoGusso TimeSeriesClusteringonLowerTailDependenceforPortfolioSelection. 131 GiovanniDeLucaandPaolaZuccolotto SolvencyAnalysisofDefinedBenefitPensionSchemes ................ 141 PierreDevolderandGabriellaPiscopo StochasticActuarialValuationsinDouble-IndexedPensionAnnuity Assessment..................................................... 151 EmiliaDiLorenzo,AlbinaOrlandoandMarilenaSibillo Testing forNormality When theSampledDistribution Is Extended Skew-Normal................................................... 159 CinziaFranceschiniandNicolaLoperfido OntheRODEOMethodforVariableSelection....................... 171 FrancescoGiordanoandMariaLuciaParrella PortfolioAllocationUsingOmegaFunction:AnEmpiricalAnalysis ..... 179 AsmerildaHitaj,FrancescoMartinelliandGiovanniZambruno Investment Rankings via an Objective Measure of Riskiness: ACaseStudy ................................................... 195 MariaErminiaMarinaandMarinaResta A Squared Rank Assessment of the Difference Between US and EuropeanFirmValuationRatios................................... 205 MarcoMarozzi ABehaviouralApproachtothePricingofEuropeanOptions........... 219 MartinaNardonandPaoloPianca ThresholdStructuresinEconomicandFinancialTimeSeries .......... 231 MarcellaNiglioandCosimoDamianoVitale Intelligent Algorithms for Trading the Euro-Dollar in the Foreign ExchangeMarket ............................................... 243 DaniloPelusi,MassimoTivegnaandPierluigiIppoliti Risk Management and Capital Allocation for Non-Life Insurance Companies ..................................................... 253 MarcoPirra,SalvatoreForteandMatteoIalenti Modelling Asymmetric Behaviour in Time Series: Identification ThroughPSO................................................... 265 ClaudioPizziandFrancescaParpinel Contents ix ValuationofCollateralizedFundsofHedgeFundObligations:ABasket OptionPricingApproach......................................... 277 GianLucaTassinariandCorradoCorradi ValuationofR&DInvestmentOpportunitiesUsingtheLeast-Squares MonteCarloMethod ............................................ 289 GiovanniVillani TheDeterminantsofInterbankContagion:DoPatternsMatter? ....... 303 StefanoZedda,GiuseppinaCannasandClaraGalliani Weak Form Efficiency of Selected European Stock Markets: Alternative Testing Approaches GiuseppinaAlbano,MicheleLaRoccaandCiraPerna Abstract Modelling and forecasting financial data is an important problem which has received alot ofattention especially forthe intrinsic difficulty in practical ap- plications.Thepresentpaperinvestigatestheweakformefficiencyofsomeselected European markets: AEX, CAC40, DAX, FTSE100, FTSEMIB, IBEX35. In order tokeepintoaccountnonlinear structuresusually foundinreturnstimeseriesdata, anonparametrictestbasedonneuralnetworkmodelshasbeenemployed.Thetest procedure has been structured as a multiple testing scheme in order to avoid any datasnoopingproblemandtokeepundercontrolthefamilywiseerrorrate.Forsake ofcomparisonwealsodiscusstheresultsobtainedbyapplyingsomeclassicaland wellknowntestsbasedontheRandomWalkHypotheses.Thedataanalysisresults clearlyshowthatignoringthemultipletestingstructureoftheselattertestmightlead tospuriousresults. 1 Introduction Theefficientmarkethypothesis(EMH),initsweakform,statesthatallavailablein- formationisfullyandinstantaneouslyreflectedinprice,soitwillbenotpossiblefor investors, usingpast prices, todiscover undervalued stocks anddevelop strategies to systematically earn abnormal returns. Clearly, this is a fundamental issue in fi- G.Albano( ) DepartmentofEconomicsandStatistics,UniversityofSalerno,Salerno,Italy e-mail:[email protected] M.LaRocca DepartmentofEconomicsandStatistics,UniversityofSalerno,Salerno,Italy e-mail:[email protected] C.Perna DepartmentofEconomicsandStatistics,UniversityofSalerno,Salerno,Italy e-mail:[email protected] M.Corazza,C.Pizzi(eds.),MathematicalandStatisticalMethodsforActuarialSciencesand Finance,DOI10.1007/978-3-319-02499-8_1,©SpringerInternationalPublishingSwitzer- land2014