Mathematics (Faculty of)
http://hdl.handle.net/10012/9924
Fri, 26 Apr 2019 14:14:34 GMT2019-04-26T14:14:34ZLongevity Risk Management: Models and Hedging Strategies
http://hdl.handle.net/10012/14530
Longevity Risk Management: Models and Hedging Strategies
Zhou, Kenneth Q.
Longevity risk management is becoming increasingly important in the pension and life insurance industries. The unexpected mortality improvements observed in recent decades are posing serious concerns to the financial stability of defined-benefit pension plans and annuity portfolios. It has recently been argued that the overwhelming longevity risk exposures borne by the pension and life insurance industries may be transferred to capital markets through standardized longevity derivatives that are linked to broad-based mortality indexes. To achieve the transfer of risk, two technical issues need to be addressed first: (1) how to model the dynamics of mortality indexes, and (2) how to optimize a longevity hedge using standardized longevity derivatives. The objective of this thesis is to develop sensible solutions to these two questions.
In the first part of this thesis, we focus on incorporating stochastic volatility in mortality modeling, introducing the notion of longevity Greeks, and analysing the properties of longevity Greeks and their applications in index-based longevity hedging. In more detail, we derive three important longevity Greeks---delta, gamma and vega---on the basis of an extended version of the Lee-Carter model that incorporates stochastic volatility. We also study the properties of each longevity Greek, and estimate the levels of effectiveness that different longevity Greek hedges can possibly achieve. The results reveal several interesting facts. For example, we found and explained that, other things being equal, the magnitude of the longevity gamma of a q-forward increases with its reference age. As with what have been developed for equity options, these properties allow us to know more about standardized longevity derivatives as a risk mitigation tool. We also found that, in a delta-vega hedge formed by q-forwards, the choice of reference ages does not materially affect hedge effectiveness, but the choice of times-to-maturity does. These facts may aid insurers to better formulate their hedge portfolios, and issuers of mortality-linked securities to determine what security structures are more likely to attract liquidity.
We then move onto delta hedging the trend and cohort components of longevity risk under the M7-M5 model. In a recent project commissioned by the Institute and Faculty of Actuaries and the Life and Longevity Markets Association, a two-population mortality model called the M7-M5 model is developed and recommended as an industry standard for the assessment of population basis risk. We develop a longevity delta hedging strategy for use with the M7-M5 model, taking into account of not only period effect uncertainty but also cohort effect uncertainty and population basis risk. To enhance practicality, the hedging strategy is formulated in both static and dynamic settings, and its effectiveness can be evaluated in terms of either variance or 1-year ahead Value-at-Risk (the latter is highly relevant to solvency capital requirements). Three real data illustrations are constructed to demonstrate (1) the impact of population basis risk and cohort effect uncertainty on hedge effectiveness, (3) the benefit of dynamically adjusting a delta longevity hedge, and (3) the relationship between risk premium and hedge effectiveness.
The last part of this thesis sets out to obtain a deeper understanding of mortality volatility and its implications on index-based longevity hedging. The volatility of mortality is crucially important to many aspects of index-based longevity hedging, including instrument pricing, hedge calibration, and hedge performance evaluation. We first study the potential asymmetry in mortality volatility by considering a wide range of GARCH-type models that permit the volatility of mortality improvement to respond differently to positive and negative mortality shocks. We then investigate how the asymmetry of mortality volatility may impact index-based longevity hedging solutions by developing an extended longevity Greeks framework, which encompasses longevity Greeks for a wider range of GARCH-type models, an improved version of longevity vega, and a new longevity Greek known as `dynamic delta'. Our theoretical work is complemented by two real-data illustrations, the results of which suggest that the effectiveness of an index-based longevity hedge could be significantly impaired if the asymmetry in mortality volatility is not taken into account when the hedge is calibrated.
Wed, 17 Apr 2019 00:00:00 GMThttp://hdl.handle.net/10012/145302019-04-17T00:00:00ZSuccinct Data Structures for Chordal Graphs
http://hdl.handle.net/10012/14520
Succinct Data Structures for Chordal Graphs
Wu, Kaiyu
We study the problem of approximate shortest path queries in chordal graphs and give a n log n + o(n log n) bit data structure to answer the approximate distance query to within an additive constant of 1 in O(1) time.
We study the problem of succinctly storing a static chordal graph to answer adjacency, degree, neighbourhood and shortest path queries. Let G be a chordal graph with n vertices. We design a data structure using the information theoretic minimal n^2/4 + o(n^2) bits of space to support the queries:
whether two vertices u,v are adjacent in time f(n) for any f(n) \in \omega(1).
the degree of a vertex in O(1) time.
the vertices adjacent to u in O(f(n)^2) time per neighbour
the length of the shortest path from u to v in O(n f(n)) time
Wed, 10 Apr 2019 00:00:00 GMThttp://hdl.handle.net/10012/145202019-04-10T00:00:00ZMicroswimmer Propulsion by Two Steadily Rotating Helical Flagella
http://hdl.handle.net/10012/14489
Microswimmer Propulsion by Two Steadily Rotating Helical Flagella
Shum, Henry
Many theoretical studies of bacterial locomotion adopt a simple model for the organism consisting of a spheroidal cell body and a single corkscrew-shaped flagellum that rotates to propel the body forward. Motivated by experimental observations of a group of magnetotactic bacterial strains, we extended the model by considering two flagella attached to the cell body and rotating about their respective axes. Using numerical simulations, we analyzed the motion of such a microswimmer in bulk fluid and close to a solid surface. We show that positioning the two flagella far apart on the cell body reduces the rate of rotation of the body and increases the swimming speed. Near surfaces, we found that swimmers with two flagella can swim in relatively straight trajectories or circular orbits in either direction. It is also possible for the swimmer to escape from surfaces, unlike a model swimmer of similar shape but with only a single flagellum. Thus, we conclude that there are important implications of swimming with two flagella or flagellar bundles rather than one. These considerations are relevant not only for understanding differences in bacterial morphology but also for designing microrobotic swimmers.
Tue, 01 Jan 2019 00:00:00 GMThttp://hdl.handle.net/10012/144892019-01-01T00:00:00ZThe effects of flagellar hook compliance on motility of monotrichous bacteria: A modeling study
http://hdl.handle.net/10012/14488
The effects of flagellar hook compliance on motility of monotrichous bacteria: A modeling study
Shum, H.; Gaffney, E. A.
A crucial structure in the motility of flagellated bacteria is the hook, which connects the flagellum filament to the motor in the cell body. Early mathematical models of swimming bacteria assume that the helically shaped flagellum rotates rigidly about its axis, which coincides with the axis of the cell body. Motivated by evidence that the hook is much more flexible than the rest of the flagellum, we develop a new model that allows a naturally straight hook to bend. Hook dynamics are based on the Kirchhoff rod model, which is combined with a boundary element method for solving viscous interactions between the bacterium and the surrounding fluid. For swimming in unbounded fluid, we find good support for using a rigid model since the hook reaches an equilibrium configuration within several revolutions of the motor. However, for effective swimming, there are constraints on the hook stiffness relative to the scale set by the product of the motor torque with the hook length. When the hook is too flexible, its shape cannot be maintained and large deformations and stresses build up. When the hook is too rigid, the flagellum does not align with the cell body axis and the cell "wobbles" with little net forward motion. We also examine the attraction of swimmers to no-slip surfaces and find that the tendency to swim steadily close to a surface can be very sensitive to the combination of the hook rigidity and the precise shape of the cell and flagellum. (C) 2012 American Institute of Physics. [http://dx.doi.org/10.1063/1.4721416]
Fri, 01 Jun 2012 00:00:00 GMThttp://hdl.handle.net/10012/144882012-06-01T00:00:00Z