Portfolio Selection for Insurance Linked Securities: An Application of Multiple Criteria Decision Making
The insurance linked securities (ILS) market is an increasingly important alternative asset class for which risk and return analysis differs from other asset classes. Measures of portfolio risk and return for an ILS portfolio are based on the expected losses and expected excess returns over the risk free rate. Multiple criteria decision making (MCDM) has found successful applications to many real world decision problems. This paper examines the application of two popular MCDM methods, Analytical Hierarchy Process (AHP) and ELECTRE III, to ILS portfolios. These methods are used to screen the securities before constructing portfolios using linear optimisation with constraints. The objective function is to minimise the portfolio expected loss for a given level of expected excess return. Upper and lower bounds are also placed on the investment in each individual ILS. The results demonstrate the benefits from applying MCDM to ILS portfolio selection.
|Date of creation:||May 2012|
|Contact details of provider:|| Postal: Ground Floor, East Wing, UNSW Kensington Campus, Sydney NSW 2052|
Phone: (+61)-2-9931 9202
Fax: (+61)-2 9385 6956
Web page: http://www.cepar.edu.au
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:asb:wpaper:201203. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elena Capatina)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.