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- English (26) (remove)

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- Derivatives (2)
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#### Institute

- Lehrstuhl für Betriebswirtschaftslehre, insbesondere Banking und Finanzcontrolling (26) (remove)

- The Benefit of Life Insurance Contracts with Capped Index Participation When Stock Prices are Subject to Jump Risk (2017)
- We analyze the benefit to the insured of newly traded, innovative life insurance contracts. On a sequence of yearly reference days, the insured can choose between a guaranteed return (linked to the insurer’s asset result) and a capped index participation. The cap is adjusted at the beginning of each year such that both alternatives have the same value and the option to select is costless (product structuring condition). We point out that this condition cannot always be met. If the guaranteed return exceeds the upper bound of the capped index participation, the insurer can make a side profit. We show that a rather low insurance result also implies a rather low stock exposure, even if the insured opts for the index participation. Concerning the impact of the index dynamics, we emphasize that it is important to distinguish between jump and diffusion risk because the pricing of jump risk has an impact on cap rates that can be offered to an insured. Finally, we show that the optimal decision strategy of a CRRA investor implies an index selection even if it is unfairly priced such that the insurer indeed makes a side profit.

- Bank Regulation - The Leverge Ratio Requirement from the Perspective of Stabilizing the Financial System (2014)
- The dissertation investigates the impact of a non-risk-weighted leverage ratio on the stability of financial institutions. We calculate leverage ratios (LR) and estimate probabilities of default (PD) and find a significant positive relationship between LR and PD. This might be explained by the fact that higher leverage ratios increase the cost of capital which in turn also increases interest rates that banks require for their loans. In fact, we find a significant positive relationship between LR and net interest margins. Following Stiglitz and Weiss (1981) increasing loan rates might attract borrowers who are more likely to default. This suggests that the potential introduction of a LR might lead to a destabilization of the banking sector since credit worthiness of borrowers might be reduced.

- Valuation, Empirical Analysis, and Optimal Exercise of Open-End Turbo Certificates (2013)
- This dissertation analyzes Open-End Turbo Certificates (OETCs), a popular class of retail derivatives. OETCs can be exercised at any time at the investor’s discretion. In order to explain the existence of the certificates jump risk must be considered. We propose and implement an optimal stopping approach to price these securities, which further allows for determining optimal exercise thresholds. They result from the trade-off between benefits from downward jump protection and financing costs. We show that early exercise right has a significant impact on their values. In an empirical analysis pertaining to the years 2007 through 2009 it turns out that certificates which could be rationally held are very rare, although the degree by which the underlying exceeds the optimal exercise thresholds continually declines over the considered period. We suggest three lines of explanation: general market movement, jump risk perception by the market, and increased competition among issuers.