A growing frequency of natural catastrophes due to global climate change has confronted insurance companies with massive compensation claims and substantial stock price risk. The catastrophe equity put options provide a means to manage such risks. As stock markets usually exhibit volatility clustering, volatility may increase significantly. This article establishes a GARCH model for global climate change to characterize the dynamic process of insurance companies’ stock prices. The incomplete market requires an Esscher transform, a specific risk-neutral probability measure that serves to price the CatEPut. The empirical analysis identifies that the inverse-Gaussian distribution for each catastrophe loss and the random walk with positive drift for the arrival rate of catastrophes perform the best in terms of goodness-of-fit. The sensitivity analysis results illustrate that global climate change, the catastrophe intensity, and the systematic/unsystematic catastrophe risk constitute important factors for determining the CatEPut price.

This article explores whether the bullish sentiment of retail and institutional investors increases Taiwan stock market liquidity as measured by the Amihud index. We find that optimistic retail investor sentiment increases market liquidity risk and that the impact of institutional investor sentiment on market liquidity is insignificant. Retail investors’ irrational sentiment is also critical to Taiwan’s market liquidity. The bullish sentiment of retail investors makes stocks with high liquidity risk more illiquid. Moreover, for different liquidity-level portfolios, the influence of retail investor sentiment on stock liquidity is greater than institutional investor sentiment.

Market makers must quote two prices - bid and ask prices - for options. This article provides a GARCH model with stochastic illiquidity risks and gives analytical approximation solutions for the bid and ask prices for options. A joint calibration method is applied for calibrating the implied parameters. The empirical evidence shows an illiquidity smile for short-term calls and a negatively sloped illiquidity smirk for long-term calls. Similar results are also observed in put option prices. The proposed stochastic illiquidity model significantly outperforms the static illiquidity model in the in-sample and out-of-sample tests, particularly when the stochastic volatility is crucial.

This article investigates whether investors exhibit herd behavior in a high market volatility state. A modified herding model with the Kalman filter and GARCH methodology is used to estimate the time-variation herding corresponding to each influential event. Our proposed model provides comprehensive results for the relationship between investor herding and the market state, which has been argued in the previous literature. We find that investors indeed herd in volatile markets, including the 2001 dot.com bubble and the 2009 global financial crisis. However, in recent years, anti-herding is prevalent and herding is slight even in turbulent markets, such as the 2020 Covid-19 pandemic.

We derive the closed-form pricing formula for CDD/HDD futures under a proposed and generalized model with the empirical application. According to the proposed model, the conditional variance of the daily average temperature (DAT) is composed of three components: based level of the seasonal variance, the squared residual innovation, and the variance clustering. The empirical results show that these components account for the conditional variance of DAT seasonally and each component plays the most important role in explaining the conditional variance of DAT in different months. The asymmetric effect of variance is seasonal. The higher asymmetric effect of variance results in higher or lower variance and therefore leads to a higher or lower price of CDD/HDD futures. Besides, the covariance of DAT and the variance is positive and also seasonal. Finally, the temperature risk premium is positive and the proposed model can improve the forecasting performance of pricing the CDD/HDD futures.

The frequency and intensity of catastrophes (including natural disasters and pandemics) rise and damage the population's health, life and property more seriously. In order to protect population health and wealth via full insurance indemnity, many countries set up a public catastrophe insurance scheme (PCIS) to maintain the function of catastrophe insurance markets. Little literature discusses the smart payment way of contributions charged by PCIS. This article design a model to describe the upward trend and cyclic frequency and intensity of catastrophic events. Such characteristics also promote the business cycle of the insurance industry. We analyze the changes in catastrophic insurer's capital structures under three cases of that the volume-based charges to the PCIS may come from equity holders or policyholders or both. PCIS may entail a shift of equity capital toward minimum solvency requirements, and then adverse incentives regarding insurer's security level arise. Various numerical experiments illustrate the changes in equity position, default probabilities, or expected policyholder deficits. The results show that the payment way of contributions should be designed carefully, not only with regard to PCIS's finance balance but also the resultant incentives and effects.

In this paper, we explore and analyze the valuation and risk management of rainfall index binary contracts, a type of precipitation derivative issued by the Chicago Mercantile Exchange (CME). We describe the underlying rainfall index with the occurrence model, which is built on a first-order, two-state Markov chain, and with the magnitude model based on mixed exponential distribution. To capture the seasonality characteristics, we describe the parameters of these two models with the truncated Fourier series. Since the weather derivatives market is incomplete due to the essence of its product, we value the rainfall index binary options with the Esscher transform and calibrate the market price of risk (MPR) with real market data. After analyzing the temporal behavior of the MPR, we find that the investors could have more accurate estimations of the rainfall index when approaching the end of the contract period or when entering the accumulation period. We also find that rather than speculators, the market participants are mainly hedgers, which may explain the shrinking of the precipitation derivatives market.

This study incorporates the Markov switching model with return jumps to depict the behavior of stock returns. Based on the daily Standard & Poor's 500 index (hereafter SPX) and the daily closing price of the call option, we use the particle filtering algorithm to fit the parameter of the model. The joint log-likelihood evaluates the model performance: the weighted average log-likelihood with the rate of return of the SPX and the relative implied volatility root-mean-squared error for the SPX call options. The empirical results identify that the pricing model with jump risks improves the pricing performance to the median-term call options. According to the sensitivity analysis, option prices increase with the probability of remaining in the recession state but decrease with the probability of remaining in the expansion state. Moreover, the call option prices are positively associated with the volatility in each market state and the factors of jump risk.

In this paper, we study whether the correlated jump risks of interest and exchange rates play an important role in currency option pricing. We augment the model of Jarrow and Yildirim (2003) with correlated jump risks (herein referred to as the CB-CJ model) and derive the pricing formula for currency options under this model. Using the data of the United States, Japan, European Union, and the United Kingdom, we find that CB-CJ outperforms the geometric Brownian model, the original Jarrow and Yildirim model, and the Jarrow and Yildirim model with independent jump risks because it substantially improves the in-sample and out-of-sample pricing errors in most cases. As a result, we conclude that correlated jump risks are important factors when pricing currency options.

Much known about Treasury inflation-protected securities (TIPS) is related to the hedge they offer against inflation, but little is known about their protection against deflation—in the form of a deflation protection option (DPO). In this article, a pricing framework that builds on a Heath–Jarrow–Morton forward-rate economy with codependent inflation- and interest-rate jumps is derived to value this embedded DPO. The model prices for TIPS resulting from this pricing framework are found to most closely fit the 10-year notes issued following the 2008 crisis. Considering these notes accounted for over 70% of the total TIPS-market trading activity, this result underscores the importance of properly assessing DPO value in times of deflationary fears compounded by rising real yields, negligence of which may well be liable for the post-crisis mispricing in TIPS. TOPICS:Fixed income and structured finance, quantitative methods, financial crises and financial market history

Unlike most studies in the literature, in this study, we incorporate three main factors into the pricing method of mortgage insurance: interest rate, housing price, and hazard rate (default risks). The empirical analysis highlighted that the interest rate and housing price are positively correlated during July 2004 to November 2016 because of the monetary policy over this period. Subsequently, in the risk-neutral pricing framework, mortgage insurance of the fixed-rate mortgage is priced using a Monte Carlo simulation approach. The sensitivity analysis indicated that interest rate, housing price, and default rate are important factors for mortgage insurance. Moreover, because our model can measure the risks of the interest rate and hazard rate, insurance companies can use this model to price mortgage insurance to avoid a condition in which the insurance company does not have sufficient reserves to support compensation. (C) 2017 Elsevier Inc. All rights reserved.

Previous studies have investigated the determinants of housing price cycles in the housing market; however, we observed the phenomenon of housing price jumps in the 2007 subprime crisis. This paper presents a discussion on the housing price cycle and abnormal price jumps to describe the behavior of housing prices in the United Kingdom. The empirical results show that the impact factors of housing cycles are market risk and the switching factor. Furthermore, the impact factors of jump risks include the bursting of the housing bubble and financial crises. Therefore, in this paper, we employ the Markov switching model with jump risks to value the MI contracts and analyze the influences of housing price cycles, jump risks, risks of market interest rate, and the prepayment risks on MI premiums. The results of sensitivity analysis show that more volatile housing price index returns, as well as longer periods of higher volatility in housing prices, raise MI premiums. Moreover, the MI premium is positively related to the absolute value of the average jump amplitude and the shock frequency of abnormal events. There is the tradeoff between the market interest rate and the prepayment risk. The influences of market interest rate are different on MI premium with/without prepayment risks.

This study uses the daily average temperature index (DAT) for New York city. By GARCH and mean reverting frameworks, we address the behaver of the temperature. Then, the model parameters are estimated by the MLE and the EM algorithm (Expectation-Maximization) and we find that the GARCH model with seasonal risk, mean reverting, and seasonal volatility risks have the better goodness-of-fit for the path of the temperature index.

This study proposes a recursive formula to value a surrenderable participating contract. To capture the dynamics of stock returns over expansion–recession cycles and the occurrence of catastrophic events, we assume the rate of return of the reference portfolio would follow a regime-switching model with jump risks. Our empirical results show that compared to the Black–Scholes model and the regime-switching model, the regime-switching model with jump risks can better explain the dynamics of the S&P 500 stock index. In addition, we give a recursive formula of a participating contract embedding a surrender option under a regime-switching model with jump risks. Sensitivity analysis shows that the changes of parameters of the regime-switching model with jump risks did influence participating contract premiums. The differences between valuations under the Black–Scholes model, the regime-switching model and the regime-switching model with jump risks suggest that it is critical to apply an appropriate model to value precisely a participating contract.

OBJECTIVES:To investigate the clinical impact of inappropriate empirical antibiotics on patient outcome and determine the risk factors for mortality in bacteremic adults who visited the emergency department (ED). METHODS:Bacteremic adults visiting the ED from January 2007 to June 2008 were identified retrospectively. Demographic characteristics, clinical conditions, bacteremic pathogens, antimicrobial agents, and outcomes were determined from chart records. RESULTS:The total of 454 eligible bacteremic adults were included in the analysis; excluded from the study were another 261 patients with contaminated blood cultures and 64 patients with ED stays of less than 24 hours. Among the included individuals, the mean age was 64.6 years, with a small predominance of males (230 patients, 50.7%). Of a total 494 bacteremic isolates, Escherichia coli (206, 41.7%) and Klebsiella species (81, 16.4%) were the most frequently encountered microorganisms. A lower 28-day mortality rate was demonstrated in bacteremic patients treated with appropriate antibiotics than that in those with inappropriate antibiotics or that in those with no antibiotic therapy, as judged by Kaplan-Meier survival curves (P = .01). Moreover, the differences among these three groups achieved higher significance (P = .002) in critically ill patients (Pittsburgh bacteremia scores of ≥ 4 points). In multivariate analyses, inappropriate antibiotic therapy in the ED was associated independently with mortality at 28 days (odds ratio, 2.26; 95% confidence interval, 1.01-5.13; P = .04). CONCLUSIONS:For bacteremic adults visiting the ED, their outcomes were favorable following appropriate antibiotics, compared to treatment with inappropriate antibiotics or no antibiotics.

Objectives: This study aims to determine the risk factors associated with the bacterial contamination of blood cultures among adults visiting the emergency department (ED).Methods: Clinical variables and medical records of adults with bacterial growth of blood cultures in the ED as well as the degree of ED crowding, between August 2007 and July 2008, were prospectively collected.Results: Of the 11 491 adults who underwent blood culture sampling, the medical records of 558 (4.86%) eligible patients with bacterial growth in their blood cultures were analyzed. Most patients (366, or 3.19%) had true bacteremia, whereas 192 (1.67%) were regarded as contaminated. In multivariate analyses, ED overcrowding (scoring was based on a National Emergency Department Overcrowding Study [NEDOCS] score >= 100 points) was independently associated with blood culture contamination (odds ratio [OR], 1.58; P = .04). In contrast, other medical comorbidities, such as liver cirrhosis (OR, 0.31; P = .02), thrombocytopenia (<100 000/mm(3); OR, 0.28; P = .002), or high serum levels of C-reactive protein (>100 mg/L; OR, 0.24; P < .001), were negatively associated with blood culture contamination. On further analysis of the 5 crowding categories as stratified by NEDOCS scores, which included not busy and busy (0-60 points), extremely busy but not overcrowded (60-100), overcrowded (100-140), severely overcrowded (140-180), and dangerously overcrowded (180-200), there was a strong correlation between blood culture contamination rates and the degrees of ED crowding (gamma = 0.99, P < .001).Conclusions: Emergency department overcrowding may have an adverse impact on the quality of clinical care, including increasing the risk of blood culture contamination. (C) 2012 Elsevier Inc. All rights reserved.

OBJECTIVES:Scabies is highly contagious and requires prompt diagnosis and implementation of infection control measures to prevent transmission and outbreaks. This study investigated the clinical and administrative correlates associated with missed diagnosis of scabies in an emergency department (ED).METHODS:This was a retrospective study of patients with incidental scabies infestations who were admitted to a university hospital via the ED during a 4-year period.RESULTS:A total of 135 inpatients were identified as having scabies; among them, 111 patients (82%) had visited the ED. Scabies were diagnosed during the ED stay in 39 of 111 patients (35%), while the diagnosis was missed in the ED in 72 patients (65%). Although no geographic clusters suggestive of nosocomial scabies transmission were registered, 160 medical workers and one hospitalized patient received prophylactic treatment due to direct skin-to-skin contact with inpatient scabies cases during the study period. Overcrowding (odds ratio [OR] = 8.4; 95% confidence interval [CI] = 1.9 to 38.0) and time constraints (OR = 8.2; 95% CI = 1.9 to 34.7) in the ED were associated with a missed diagnosis of scabies during ED stay. Patients with lower illness severity scores were at higher risk for failure to diagnose and to treat scabies prior to hospital admission (OR = 5.7; 95% CI = 1.6 to 20.9).CONCLUSIONS:Missed diagnoses of scabies during ED stay may result in nosocomial spread and increase the unnecessary use of prophylactic treatments. ED overcrowding, time constraints, and less severe illness compromise ED recognition of scabies. Health care workers should be especially alert for signs of scabies infestations under these conditions.

Paget's disease of the bone, which is characterized by a focal region of highly exaggerated bone remodeling, is very rare in Asia. Most patients with Paget's disease are asymptomatic; they are normocalcemic and show elevated alkaline phosphatase levels. Hypercalcemia in patients with Paget's disease has rarely been reported. We report one Chinese patient with Paget's disease involving the maxilla bone with an initial presentation of facial cellulitis. Asymptomatic hypercalcemia with a low-normal intact parathyroid hormone level developed 9 years later. After clodronate treatment, the level of alkaline phosphatase normalized, but the hypercalcemia did not respond adequately. After analysis of tumor markers and imaging studies, a clinical diagnosis of pancreatic adenocarcinoma with multiple hepatic and lung metastases with pleural effusion was made. We suggest that malignancy-associated hypercalcemia should be considered as one of the causes of hypercalcemia in patients with Paget's disease.