Inaugural Lectures MSc in Finance and Risk Management (Università di Firenze) Academic Year 2017/2018

17 October 2017 Aula 0.05, D15 building, Polo di Novoli

PROGRAM

9.30 Institutional greetings

9.45

Elisa LUCIANO (University of Torino) " Geographical diversification of life-insurance companies: evidence and diversification rationale"

10.45 Coffee-break

11.15

Tai-Ho WANG (Baruch College, City University of New York) "Implied volatility and its related financial instruments: modeling and pricing"

12.30

Dimitri LORENZANI (European Commission, Directorate General for Economic and Financial Affairs) "The European Commission's 2017 Country Report: analytical insights"

More information http://www.frm.unifi.it/

Abstracts

Elisa LUCIANO (University of Torino) " Geographical diversification of life-insurance companies: evidence and diversification rationale"

Large life insurance companies are internationally diversified. The cost-effectiveness or business-cycle smoothing of international diversification is not always at work. How can the empirical evidence be rationalized, then? We show that diversification gains from international expansion can reduce risk margins and Solvency requirements due to longevity risk. Gains are more pronounced in a low-interest rates regime. To show that result, we build parsimonious continuous-time model for longevity risk, that captures the dependence across different ages in different populations. We define a diversification index and measure diversification gains in capital requirements according to the current regulation. We present a calibrated example, based on annuity portfolios of UK and Italian males. The results of our application show that diversification gains, evaluated as the reduction in the portfolio risk margin following the international expansion, may be non-negligible.

Tai-Ho WANG (Baruch College, City University of New York) "Implied volatility and its related financial instruments: modeling and pricing"

Abstract: Implied volatility modeling has been a mainstream research in academia and industry almost since the trading of options was introduced to the financial world. In this talk, we review stylized facts of implied volatility in equity market, followed by an introduction to the commonly used models that captures partly the stylized facts. The models include local volatility model, stochastic volatility model, local-stochastic volatility, and the fractional volatility model. The last in the list has been regaining great attentions these days. Numerical pricing of vanilla options and calibration of implied volatilities under these models will be briefly discussed. We conclude the talk by the pricing of financial instruments that are directly or indirectly related to implied volatilities.

Dimitri Lorenzani (European Commission, Directorate General for Economic and Financial Affairs) " The European Commission's 2017 Country Report: analytical insights"

Abstract: In the 2017 Country Report, the European Commission assessed Italy's economy in the light of the economic priorities established through the 2017 Annual Growth Survey: (i) boosting investment; (ii) pursuing structural reforms; and (iii) ensuring responsible fiscal policies. The presentation aims to provide insights into some of the analytical work underpinning the European Commission's findings. The Country Report indicates that, despite some important reforms in recent years, significant structural weaknesses in diverse policy areas continue to undermine Italy's productivity growth, slowing the correction of Italy's excessive macroeconomic imbalances. In particular, the high public debt remains a major source of vulnerability for the Italian economy given the low potential growth and a still fragile fiscal position. Moreover, the competitiveness gap of the Italian economy vis-à-vis the rest of the euro area persists also due to the insufficient innovation capacity of Italian firms. The legacies of the long-lasting crisis also weigh on Italy's growth prospects since sizeable non-performing loans hamper banks' ability to support investment, while long-term and youth unemployment remain high.