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Convex order approximations in the case of cash flows of mixed signs

Author

Listed:
  • Dhaene, Jan
  • Goovaerts, Marc
  • Vanmaele, Michèle
  • Van Weert, Koen

Abstract

In Van Weert et al. (2010), results are obtained showing that, when allowing some of the cash flows to be negative, convex order lower bound approximations can still be used to solve general investment problems in a context of provisioning or terminal wealth. In this paper, a correction and further clarification of the reasoning of Van Weert et al. (2010) are given, thereby significantly expanding the scope of problems and cash flow patterns for which the terminal wealth or initial provision can be accurately approximated. Also an interval for the probability level is derived in which the quantiles of the lower bound approximation can be computed. Finally, it is shown how one can move from a context of provisioning of future obligations to a saving and terminal wealth problem by inverting the time axis.

Suggested Citation

  • Dhaene, Jan & Goovaerts, Marc & Vanmaele, Michèle & Van Weert, Koen, 2012. "Convex order approximations in the case of cash flows of mixed signs," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 249-256.
  • Handle: RePEc:eee:insuma:v:51:y:2012:i:2:p:249-256
    DOI: 10.1016/j.insmatheco.2012.04.003
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    References listed on IDEAS

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    1. Van Weert, Koen & Dhaene, Jan & Goovaerts, Marc, 2010. "Optimal portfolio selection for general provisioning and terminal wealth problems," Insurance: Mathematics and Economics, Elsevier, vol. 47(1), pages 90-97, August.
    2. Dhaene, J. & Denuit, M. & Goovaerts, M. J. & Kaas, R. & Vyncke, D., 2002. "The concept of comonotonicity in actuarial science and finance: theory," Insurance: Mathematics and Economics, Elsevier, vol. 31(1), pages 3-33, August.
    3. Dhaene, J. & Denuit, M. & Goovaerts, M. J. & Kaas, R. & Vyncke, D., 2002. "The concept of comonotonicity in actuarial science and finance: applications," Insurance: Mathematics and Economics, Elsevier, vol. 31(2), pages 133-161, October.
    4. J. Dhaene & S. Vanduffel & M. J. Goovaerts & R. Kaas & D. Vyncke, 2005. "Comonotonic Approximations for Optimal Portfolio Selection Problems," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(2), pages 253-300.
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    Citations

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    Cited by:

    1. Cheung, K.C. & Chong, W.F. & Yam, S.C.P., 2015. "Convex ordering for insurance preferences," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 409-416.

    More about this item

    Keywords

    Convex order approximations; Comonotonicity; Cash flows of mixed signs; Terminal wealth; Provisioning;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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