Kaiserslautern - Fachbereich Mathematik
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As a consequence of the real estate market crash after 2008, large investors invested a significant amount of wealth into single-family houses to construct a portfolio of rental dwellings, whose income is securitized in the capital. In some local housing markets, these investors own remarkable numbers of single-family houses. Furthermore, their trading activities have resulted in a new investment strategy, which exacerbates property wealth concentration and polarization. This new investment strategy and its portfolio optimization inspire curiosity about its influence on housing markets. This paper first aims to find an optimal portfolio strategy by employing an expected utility optimization from the terminal wealth, which adopts a stochastic model that includes a variety of economic states to estimate house prices. Second, it aims to analyze the effect of large investors on the housing market. The results show the investment strategies of large investors depend on the balance among economic state, maintenance cost, rental income, interest rate and investment willingness of large investors to housing and their effect depends on the state of the economy.
Continuous-time regime-switching models are a very popular class of models for financial applications. In this work the so-called signal-to-noise matrix is introduced for hidden Markov models where the switching is driven by an unobservable Markov chain. Its relations to filtering, i.e. state estimation of the chain given the available observations, and portfolio optimization are investigated. A convergence result for the filter is derived: The filter converges to its invariant distribution if the eigenvalues of the signal-to-noise matrix converge to zero. This matrix is then also used to prove a mutual fund representation for regime-switching models and a corresponding market reduction which is consistent with filtering and portfolio optimization. Two canonical cases for the reduction are analyzed in more detail, the first based on the market regimes and the second depending on the eigenvalues. These considerations are presented both for observable and unobservable Markov chains. The results are illustrated by numerical simulations.
In this paper we investigate a utility maximization problem with drift uncertainty in a multivariate continuous-time Black–Scholes type financial market which may be incomplete. We impose a constraint on the admissible strategies that prevents a pure bond investment and we include uncertainty by means of ellipsoidal uncertainty sets for the drift. Our main results consist firstly in finding an explicit representation of the optimal strategy and the worst-case parameter, secondly in proving a minimax theorem that connects our robust utility maximization problem with the corresponding dual problem. Thirdly, we show that, as the degree of model uncertainty increases, the optimal strategy converges to a generalized uniform diversification strategy.
This contribution defends two claims. The first is about why thought experiments are so relevant and powerful in mathematics. Heuristics and proof are not strictly and, therefore, the relevance of thought experiments is not contained to heuristics. The main argument is based on a semiotic analysis of how mathematics works with signs. Seen in this way, formal symbols do not eliminate thought experiments (replacing them by something rigorous), but rather provide a new stage for them. The formal world resembles the empirical world in that it calls for exploration and offers surprises. This presents a major reason why thought experiments occur both in empirical sciences and in mathematics. The second claim is about a looming aporia that signals the limitation of thought experiments. This aporia arises when mathematical arguments cease to be fully accessible, thus violating a precondition for experimenting in thought. The contribution focuses on the work of Vladimir Voevodsky (1966–2017, Fields medalist in 2002) who argued that even very pure branches of mathematics cannot avoid inaccessibility of proof. Furthermore, he suggested that computer verification is a feasible path forward, but only if proof is not modeled in terms of formal logic.
We consider the optimization problem of a large insurance company that wants to maximize the expected utility of its surplus through the optimal control of the proportional reinsurance. In addition, the insurer is exposed to the risk of default of its reinsurer at the worst possible time, a setting that is closely related to a scenario of the Swiss Solvency Test.
Many real-world optimization and decision-making problems comprise several, partly conflicting objective functions. The English saying “Quality has its price” is just as true on a large scale as it is in private sphere and, therefore, quality and price are a typical pair of conflicting objective functions that are very common in applications. Yet, in industrial applications, both quality and cost may be understood in the specific context and differ whether a transportation, a production, or a planning problem is considered. Other objective functions that are receiving increasing attention in real-world decision-making situations are, for example, robustness, time, sustainability, adaptability, or longevity.
In this paper, we devise a stochastic asset–liability management (ALM) model for a life insurance company and analyze its influence on the balance sheet within a low-interest rate environment. In particular, a flexible procedure for the generation of insurers’ compressed contract portfolios that respects the given biometric structure is presented, extending the existing literature on stochastic ALM modeling. The introduced balance sheet model is in line with the principles of double-entry bookkeeping as required in accounting. We further focus on the incorporation of new business, i.e. the addition of newly concluded contracts and thus of insured in each period. Efficient simulations are obtained by integrating new policies into existing cohorts according to contract-related criteria. We provide new results on the consistency of the balance sheet equations. In extensive simulation studies for different scenarios regarding the business form of today’s life insurers, we utilize these to analyze the long-term behavior and the stability of the components of the balance sheet for different asset–liability approaches. Finally, we investigate the robustness of two prominent investment strategies against crashes in the capital markets, which lead to extreme liquidity shocks and thus threaten the insurer’s financial health.
First essential m-dissipativity of an infinite-dimensional Ornstein-Uhlenbeck operator N, perturbed by the gradient of a potential, on a domain FC
∞
b
of finitely based, smooth and bounded functions, is shown. Our considerations allow unbounded diffusion operators as coefficients. We derive corresponding second order regularity estimates for solutions f of the Kolmogorov equation ◂−▸αf−Nf=g, ◂+▸α∈(0,∞), generalizing some results of Da Prato and Lunardi. Second, we prove essential m-dissipativity for generators (◂,▸LΦ,FC
∞
b
) of infinite-dimensional degenerate diffusion processes. We emphasize that the essential m-dissipativity of (◂,▸LΦ,FC
∞
b
) is useful to apply general resolvent methods developed by Beznea, Boboc and Röckner, in order to construct martingale/weak solutions to infinite-dimensional non-linear degenerate stochastic differential equations. Furthermore, the essential m-dissipativity of (◂,▸LΦ,FC
∞
b
) and (◂,▸N,FC
∞
b
), as well as the regularity estimates are essential to apply the general abstract Hilbert space hypocoercivity method from Dolbeault, Mouhot, Schmeiser and Grothaus, Stilgenbauer, respectively, to the corresponding diffusions.