||Three Essays on Asset Management of Life Insurer Behavior: Credit Swap Transaction, Sunflower Behavior, and CEO Overconfidence
||Doctoral Program, Department of Management Sciences
Insurer interest margin
Credit swap transaction
|| 本文建立一個評估人壽保險公司報酬權益的市場價值之或有請求權模型。從以下三個議題關於保險公司資產負債匹配管理的文獻進行補充：信用交換交易、向日葵行為和CEO過度自信行為。研究方法的共同基礎是基於或有請求權模型分析。這三個議題主要假設分別為：(i) 假設保險公司所面對的資本投資市場和人壽保險市場是不完全競爭市場結構，為保險公司行為與信用交換交易問題建立了或有請求權模型。 (ii) 假設資本投資市場為不完全競爭市場，建構基於或有請求權的效用函數來討論人壽保險管理中的向日葵行為。 (iii) 資本投資和人壽保險市場是不完全競爭的，模型針對CEO過度自信和影子保險問題展開建立了或有請求權模型。
主要研究結果如下：(i) 第2章通過分析信用交換交易對保險公司利差行為和保戶保護的影響，以及在不同程度的資本監管、提早違約風險和利潤分享參與下，信用交換交易可能存在的差異，對保險文獻進行了補充。我們發現，當保險人作為風險承擔的賣方獲得風險補償時，保戶受到了保護。 (ii) 第3章建立或有請求權模型來評估CEO效用函數的價值，該效用函數被定義為喜歡較高的報酬風險和不喜歡較高的厭惡風險，以取悅董事會。CEO的向日葵行為降低了董事會的效用，並使CEO在提供人壽保險單時、提高利率時更加謹慎地承擔風險。 (iii) 第4章通過將影子保險與金融危機期間的政府援助結合，為有關過度自信行為的文獻做出了貢獻。我們發現從CEO的過度自信到投資效率提高，政府的援助有利於保險公司的生存。綜合上述，或有請求權方法與信用交換交易、CEO向日葵行為和CEO過度自信行為這三個問題密切相關。
|| In the dissertation, we develop a contingent model to evaluate the equity of a life insurer. The dissertation complements the literature about the insurer’s asset-liability matching management in three aspects: credit swap transaction, sunflower behavior, and chief executive officer (CEO) overconfidence. The common base of the research approach is based on a contingent claim analysis. The main assumptions of the three issues are, respectively, (i) the invested-asset market and the life insurance market faced by the insurer are assumed imperfectly competitive and a down-and-out call option is developed for the issue of the linkage between insurer behavior and credit swap transaction; (ii) the invested-asset market is assumed to be imperfectly competitive and a utility function based on the standard call option is developed to discuss the sunflower behavior in life insurance management; and (iii) both the invested-asset and life insurance markets are imperfectly competitive and a down-and-out call option is employed to analyze the issue of CEO overconfidence and shadow insurance. The main findings are summarized as follows, respectively. (i) Chapter 2 complements the insurance literature by analyzing how the effects of credit swap transactions on insurer spread behavior and policyholder protection, and how they might differ across various degrees of capital regulation, premature default risk and profit-sharing participation. We find that the policyholder is protected when the insurer as a protection seller benefits risk-taking compensation. (ii) Chapter 3 is the first one to develop a contingent claim model to evaluate the value of the CEO’s utility function defined as the like of higher equity return and the dislike of higher equity risk to please the board. The CEO’s sunflower aptitude yields lower board utility and makes the CEO more prudent to risk-taking at an increased interest margin for the provision of life insurance policies. (iii) Chapter 4 contributes to the literature on overconfidence behavior by linking shadow insurance and the government's bailout during a financial crisis. We show that there is an efficiency gain from CEO overconfidence to investment and government bailout helps insurer survival. In conclusion, it is shown that the contingent claim approach is intimately relevant to the following three issues in the dissertation: credit swap transaction, sunflower management, and CEO overconfidence.
Chapter 1 Introduction 1
1.1. Contextual background 1
1.2. Problem statement 2
1.3. Aim and objectives of the study 3
1.4. The rationale of the study 5
1.5. Significance of the study 5
1.6. Structure of the study 6
Chapter 2 Credit Swap Transaction 9
2.1. Features of credit swap transaction in asset-liability matching management 9
2.2. Related literature and background 12
2.3. Model basics 14
2.4. Solutions and comparative statics 21
2.5. Numerical results 24
Chapter 3 Sunflower management 38
3.1. Importance of sunflower utility 38
3.2. Related literature 42
3.3. Sunflower management model 45
3.4. Solution and results 52
Chapter 4 CEO Overconfidence 63
4.1. Characteristics of CEO overconfidence, insurer performance, and bailouts 63
4.2. Literature and motivation 66
4.3. Model framework 70
4.4. Optimal decisions and comparative static analyses 81
4.5. Numerical analysis 87
Chapter 5 Conclusion 106
5.1. Main results 106
5.2. Implications 108
5.3. Future research directions 109
Table of contents
Table 1. Life insurer’s initial balance sheet. 16
Table 2. Responsiveness of insurer asset-leading interest margin to or 26
Table 3. Responsiveness of insurer liabilities to based on Eq. (15) or based on Eq. (16). 28
Table 4. Responsiveness of guaranteed rate to or 32
Table 5. Responsiveness of insurer liabilities to or . 33
Table 6. The life insurance company’s balance sheet at 46
Table 7. Values of and evaluated at its approximate optimal with various levels of required guaranteed rate 55
Table 8. Responsiveness of insurer interest margin to required guaranteed interest rate 57
Table 9. Responsiveness of insurer interest margin to participation coefficient 59
Table 10. Responsiveness of insurer interest margin to substitution elasticity 60
Table 11. The life insurance company’s balance sheet at 71
Table 12. Responsiveness of asset-side interest margin (asset interest rate) and default risk to CEO overconfidence degree based on Eqs. (44) and (46). 89
Table13. Responsiveness of liability-side interest margin (guaranteed interest rate) and default risk to CEO overconfidence degree based on Eqs. (45) and (47) 93
Table 14. Responsiveness of asset-side interest margin (asset interest rate) and default risk to buying distressed assets based on Eqs. (48) and (50) 95
Table 15. Responsiveness of liability-side interest margin (guaranteed interest rate) and default risk to buying distressed assets based on Eqs. (49) and (51). 99
Table 16. Responsiveness of efficiency gain from CEO overconfidence to buying distressed assets when asset-side interest margin is considered, Eq. (52) 100
Table 17. Responsiveness of efficiency gain from CEO overconfidence to buying distressed assets when liability-side interest margin is considered, Eq. (53) 103
Figure of contents
Figure 1. Structure of the study …. 8
Figure 2. Responsiveness of insurer liabilities to based on Eq. (15) or based on Eq. (16) at various levels of 29
Figure 3. Responsiveness of insurer liabilities to based on Eq. (15) or based on Eq. (16) at various levels of 30
Figure 4. Responsiveness of insurer liabilities to based on Eq. (15) or based on Eq. (16) at various levels of 31
Figure 5. Responsiveness of insurer liabilities to based on Eq. (19) or based on Eq. (20) at various levels of 34
Figure 6. Responsiveness of insurer liabilities to based on Eq. (19) or based on Eq. (20) at various levels of 35
Figure 7. Responsiveness of insurer liabilities to based on Eq. (19) or based on Eq. (20) at various levels of 35
Figure 8. Responsiveness of default risk to overconfidence degree at various levels of shadow-banking transaction based on Eq. (46) 91
Figure 9. Responsiveness of default risk to overconfidence degree at various levels of buying distressed assets by the government based on Eq. (46) 91
Figure 10. Responsiveness of default risk to buying distressed assets at various levels of CEO overconfidence based on Eq. (50) 97
Figure 11. Responsiveness of default risk to buying distressed assets at various levels of shadow-banking transaction based on Eq. (50) 97
Figure 12. Responsiveness of efficiency gain to buying distressed assets at various levels of shadow-banking transaction based on Eq. (52) 101
Figure 13. Responsiveness of efficiency gain to buying distressed assets at various levels of barrier based on Eq. (52) 102
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