Browsing by Author "Lo, Chien-Ling"

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Moment-Matching Approximations for Asian Options
(2014-06-01)
Lo, Chien-Ling
;
Palmer, Kenneth J.
;
Yu, Min-Teh
;
資訊管理與財務金融系註：原資管所+財金所
;
Department of Information Management and Finance
This study provides a generalized framework under which all types of Asian options can be priced: fixed and floating strike, forward starting, and in progress. We not only extend the previous studies to our framework, but also propose a new and theoretically supported closed-form approximation for the option prices. We utilize the moment-matching approach, providing a tractable, flexible, and efficient iterative method to calculate the moments. This study also suggests that the use of a Taylor expansion is unnecessary and exhibits the considerable improvement achieved by avoiding truncation errors.
Valuation of insurers' contingent capital with counterparty risk and price endogeneity
(2013-12-01)
Lo, Chien-Ling
;
Lee, Jin-Ping
;
Yu, Min-Teh
;
資訊管理與財務金融系註：原資管所+財金所
;
Department of Information Management and Finance
This study develops a structural framework to value insurers' contingent capital with counterparty risk (CR) and overcomes the problem of price endogeneity (PE) in the valuation model. Our results on the focal contingent capital instrument - catastrophe equity put option (CatEPut) - indicate that prices can be significantly overestimated without considering CR and be significantly underestimated without considering PE. This study also examines how CatEPuts affect the buyer's probability of default (PD). Our results show that buying a CatEPut lowers the PD for high-risk insurers, but not necessarily so for low-risk insurers; however, without taking CR and PE into account, one may significantly overestimate the credit enhancement provided by the CatEPuts. (C) 2013 Elsevier B.V. All rights reserved.