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2002 Fiscal Year Final Research Report Summary

Managing new type of risks - Electricity, weather, and insurance risks and their derivatives-

Research Project

Project/Area Number 13430024
Research Category

Grant-in-Aid for Scientific Research (B)

Allocation TypeSingle-year Grants
Section一般
Research Field Public finance/Monetary economics
Research InstitutionHitotsubashi University

Principal Investigator

MIURA Ryozo  Graduate School of International Corporate Strategy, Professor, 大学院・国際企業戦略研究科, 教授 (30107081)

Co-Investigator(Kenkyū-buntansha) HONDA Toshiki  Graduate School of International Corporate Strategy, Associate Professor, 大学院・国際企業戦略研究科, 助教授 (70303063)
NAKAMURA Nobuhiro  Graduate School of International Corporate Strategy, Associate Professor, 大学院・国際企業戦略研究科, 助教授 (90323899)
OHASHI Kazuhiko  Graduate School of International Corporate Strategy, Associate Professor, 大学院・国際企業戦略研究科, 助教授 (50261780)
NAGAYAMA Izumi  Graduate School of International Corporate Strategy, Associate Professor, 大学院・国際企業戦略研究科, 助教授 (50334595)
Project Period (FY) 2001 – 2002
KeywordsWeather Derivatives / Electricity / Insurance / Edokko Options / Jump Process / Incomplete Markets / Risk Management / Asymmetric Information
Research Abstract

In this research project, we developed basic theories for managing new types of risks such as electricity, weather, and insurance. The main results that we obtained so far are as follows.
The first is the derivation of pricing formula for "Edokko Options." The Edokko Option is a generalization of the alpha-percentile (or quintile) option. This formula gives us the price of an option whose payoff is determined by the frequency that the underlying asset price is less than a certain critical value in a certain period of time. We may apply this formula to price a weather derivatives whose payoff depends on the number of rainy days in a certain period of time e.g., between June 1 and July 31.
The second is the analysis of optimal portfolio strategies in incomplete markets with price jump. Electricity prices sometimes jump, which is called price "spikes" and is an important characteristics of this market. Our second result provides a way to manage such discontinuous "jump" risks. This analysis enables us to calculate the premium of the insurance for such jump risks.
The third is the analysis of liquidity of financial products to trade new (and not well known) risks. Taking CAT insurance futures and reinsurance markets as an example, we analyzed how the asymmetric information about the risks between the seller and the buyers affects the trade of the products. We obtain conditions under which new risks eventually can be traded as securities.

  • Research Products

    (6 results)

All Other

All Publications (6 results)

  • [Publications] Takehiko FUJITA, Ryozo MIURA: "Edokko Options : A New Framework of Barrier Options"Asia-Pacfic Financial Markets. 9. 141-151 (2002)

    • Description
      「研究成果報告書概要(和文)」より
  • [Publications] Nobuhiro NAKAMURA: "Dual Optimization in the Incomplete Market Driven by Jump-Diffusion Processes"Proceedings, The 10th meeting of Nippon Finance Association. 168-182 (2002)

    • Description
      「研究成果報告書概要(和文)」より
  • [Publications] Kazuhiko OHASHI: "When should a CAT Index Futures be created?"Discussion Paper Series, ISER, Osaka University. 576. 1-27 (2003)

    • Description
      「研究成果報告書概要(和文)」より
  • [Publications] Takehiko FUJITA and Ryozo MIURA: "Edokko Options : A New Framework of Barrier Options"Asia-Pacific Financial Markets. 9. 141-151 (2002)

    • Description
      「研究成果報告書概要(欧文)」より
  • [Publications] Nobuhiro NAKAMURA: "Dual Optimization in the Incomplete Market Driven by Jump-Diffusion Processes"Proceedings, The 10^<th> meeting of the Nippon Finance Association. 168-182 (2002)

    • Description
      「研究成果報告書概要(欧文)」より
  • [Publications] Kazuhiko OHASHI: "When should a CAT Index Futures be created?"Discussion paper series, ISER, Osaka University. 576. 1-27 (2003)

    • Description
      「研究成果報告書概要(欧文)」より

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Published: 2004-04-14  

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