Kevin Dowd

Kevin Dowd
Cobden Partners

About

286
Publications
52,861
Reads
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9,422
Citations
Citations since 2016
32 Research Items
3915 Citations
20162017201820192020202120220100200300400500600
20162017201820192020202120220100200300400500600
20162017201820192020202120220100200300400500600
20162017201820192020202120220100200300400500600

Publications

Publications (286)
Article
Full-text available
We propose a general framework that can be used to analyse the mortality experience of a large portfolio of lives. The objective of the framework is to provide a firm evidence base to support the setting of future mortality assumptions for the portfolio as a whole or subgroup-by-subgroup. The framework is developed in tandem with an analysis of the...
Article
Full-text available
We introduce a simple extension to the CBDX model to project cohort mortality rates to extreme old age. The proposed approach fits a polynomial to a sample of age effects, uses the fitted polynomial to project the age effects to ages beyond the sample age range, then splices the sample and projected age effects, and uses the spliced age effects to...
Preprint
Full-text available
Contrary to the claims made by several authors, a financial market model in which the price of a risky security follows a reflected geometric Brownian motion is not arbitrage-free. In fact, such a model is unsuitable for contingent claim valuation because it violates even the weakest no-arbitrage conditions. In particular, it does not admit a well-...
Preprint
Full-text available
We report the results of an in-depth analysis of the mortality of pensioners in the Universities Superannuation Scheme (USS), the largest funded pension scheme in the UK and one with a highly educated and very homogeneous membership. The USS experience was compared with English mortality subdivided into deprivation deciles using the Index of Multip...
Article
Full-text available
U.K. equity release actuaries are using a flawed approach to value the no-negative equity guarantees in their equity release mortgages. The approach they use, the discounted projection approach, incorrectly uses projected future house prices as the underlying prices in their put option pricing equations. The correct approach uses forward house pric...
Article
We obtain valuations of UK Equity Release Mortgages under the ‘market consistent’ approach consistent with conventional option pricing and the ‘discounted projection’ approach used by the industry. Projections of the expected profitability of these products have significant commercial implications.
Article
Full-text available
The purpose of this paper is to identify a workhorse mortality model for the adult age range (i.e., excluding the accident hump and younger ages). It applies the “general procedure” (GP) of Hunt & Blake [(2014), North American Actuarial Journal, 18, 116–138] to identify an age-period model that fits the data well before adding in a cohort effect th...
Article
Full-text available
The purpose of this paper is to identify a workhorse mortality model for the adult age range (i.e., excluding the accident hump and younger ages). It applies the "general procedure" (GP) of Hunt and Blake (2014) to identify an age-period model that fits the data well before adding in a cohort effect that captures the residual year-of-birth effects...
Preprint
Full-text available
This article shows how mortality models that involve age effects can be fitted to ages beyond the sample range using projections of age effects as replacements for age effects that might not be in the sample. This ‘projected age effect’ approach allows insurers to use age-effect mortality models to obtain valuations of financial instruments such as...
Article
Full-text available
This article shows how cohort mortality rate projections of mortality models that involve age effects can be improved and extended to extreme old ages.
Article
We consider the effectiveness of an illustrative annuity hedging problem in which a forward annuity predicated on one population is hedged by a position in a forward annuity predicated on another population. Our analysis makes use of the age-period-cohort two-population gravity model that takes account of the observed interdependence between the tw...
Article
Full-text available
We introduce a new modelling framework to explain socio-economic differences in mortality in terms of an affluence index that combines information on individual wealth and income. The model is illustrated using data on older Danish males over the period 1985–2012 reported in the Statistics Denmark national register database. The model fits the hist...
Article
Full-text available
We introduce a new modelling framework to explain socioeconomic differences in mortality in terms of an affluence index that combines information on individual wealth and income. The model is illustrated using data on older Danish males over the period 1985-2012 reported in the Statistics Denmark national register database. The model fits the histo...
Article
Full-text available
This paper updates Living with Mortality published in 2006. It describes how the longevity risk transfer market has developed over the intervening period, and, in particular, how insurance-based solutions – buy-outs, buy-ins and longevity insurance – have triumphed over capital markets solutions that were expected to dominate at the time. Some capi...
Article
Full-text available
This paper updates Living with Mortality published in 2006. It describes how the longevity risk transfer market has developed over the intervening period, and, in particular, how insurance-based solutions-buy-outs, buy-ins and longevity insurance-have triumphed over capital markets solutions that were expected to dominate at the time. Some capital...
Article
Full-text available
This paper updates "Living with Mortality" published in 2006. It describes how the longevity risk transfer market has developed over the intervening period, and, in particular, how insurance-based solutions – buy-outs, buy-ins and longevity insurance – have triumphed over capital markets solutions that were expected to dominate at the time. Some ca...
Chapter
Clearinghouses have an important role in protecting against counterparty risk through the setting of margins. Margins are also used to ensure the competitiveness of exchanges. Thus the Clearinghouse has an important role in ensuring both of these objectives and there may be a dilemma in trying to minimise the margin to ensure competitiveness and al...
Article
Full-text available
The analysis of national mortality trends is critically dependent on the quality of the population, exposures and deaths data that underpin death rates. We develop a framework that allows us to assess data reliability and to identify anomalies, illustrated, by way of example, using England and Wales population data. First, we propose a set of graph...
Article
The New Life Market The huge economic significance of longevity risk for corporations, governments and individuals has begun to be recognized and quantified. By virtue of its size and prevalence, longevity risk is the most significant life-related risk exposure in financial terms and poses a potential threat to the whole system of retirement income...
Article
Full-text available
This paper uses mortality fan charts to illustrate prospective future male mortality. These fan charts show both the most likely path of male mortality and the bands of uncertainty surrounding that path. The fan charts are based on a model of male mortality that is known to provide a good fit to UK mortality data. The fan charts suggest that there...
Chapter
This chapter examines forecasting inflation and evaluates how well they perform. Forecasting is a notoriously inexact science, and even with the best forecasting model, realized outcomes are almost always different from those projected. Forecasts are therefore uncertain. The Bank's performance is so poor at inflation density forecasting that one ca...
Article
Full-text available
This paper reformulates the Lévy–Kintchine formula to make it suitable for modeling the stochastic time-changing effects of Lévy processes. Using the variance gamma (VG) process as an example, it illustrates the dynamic properties of a Lévy process and revisits the earlier work of Geman (2002). It also shows how the model can be calibrated to price...
Article
Full-text available
The analysis of national mortality trends is critically dependent on the quality of the population, exposures and deaths data that underpin death rates. We develop a framework that allows us to assess data reliability and to identify anomalies, illustrated, by way of example, using England and Wales population data. First, we propose a set of graph...
Chapter
This article examines the securitization of life-related risks. It briefly reviews the history of such securitizations and sets out their potential benefits to the firms and investors involved. It then explains their mechanics and examines four recent important classes: “block of business” securitizations, regulatory reserving or XXX securitization...
Chapter
The Value at Risk (VaR) on a portfolio is the maximum loss we might expect over a given period, at a given level of confidence. It is therefore defined over two parameters – the period concerned, usually known as the holding period, and the confidence level – whose values are arbitrarily chosen. The VaR is a relatively recent risk measure whose roo...
Technical Report
Full-text available
In this report, we ask whether the cost of pension scheme membership in the UK (we use the total expense ratio or TER) offers value for money to the ‘average’ member, by which we mean the 90-97% of employees who will be automatically enrolled into the default fund. The key features of a pension scheme’s VfM are the design and cost of the default as...
Article
This paper sets out a methodology for constructing fan charts for the government deficit and debt ratios over the medium-term. It relies on information contained in Stability/Convergence Programme Updates, a model of the relevant stochastic process (for example, the real GDP process) or processes, and a parameter estimate of the sensitivity of the...
Chapter
Full-text available
Longevity risk—the risk of unanticipated increases in life expectancy—has only recently been recognized as a significant global risk that has materially raised the costs of providing pensions and annuities. We first discuss historical trends in the evolution of life expectancy and then analyze the hedging solutions that have been developed for mana...
Chapter
Incremental VaR Component VaR Decomposition of Coherent Risk Measures
Chapter
Compiling Historical Simulation Data Estimation of Historical Simulation VaR and ES Estimating Confidence Intervals for Historical Simulation VaR and ES Weighted Historical Simulation Advantages and Disadvantages of Non-Parametric Methods Conclusions Estimating Risk Measures with Order Statistics The Bootstrap Non-parametric Density Estimation Prin...
Chapter
Liquidity and Liquidity Risks Estimating Liquidity-Adjusted VaR Estimating Liquidity at Risk (LaR) Estimating Liquidity in Crises
Chapter
Conditional vs Unconditional Distributions Normal VaR and ES The t-Distribution The Lognormal Distribution Miscellaneous Parametric Approaches The Multivariate Normal Variance–Covariance Approach Non-Normal Variance–Covariance Approaches Handling Multivariate Return Distributions with Copulas Conclusions Forecasting Longer-term Risk Measures
Chapter
Forecasting Volatilities Forecasting Covariances and Correlations Forecasting Covariance Matrices Modelling Dependence: Correlations and Copulas
Chapter
The Mean–Variance Framework for Measuring Financial Risk Value at Risk Coherent Risk Measures Conclusions Probability Functions Regulatory Uses of VaR
Chapter
Full-text available
(Abstract of the book) The UK decided not to join the euro on economic grounds. This was a decision which met with approval from the vast majority of UK liberal economists and which has been proved right by the course of events. Indeed, even the major supposed benefit of the euro – reduced currency volatility – is questionable when the volatility o...
Technical Report
Full-text available
This report analyses the DC default funds used for auto-enrolment from two main perspectives. The first is qualitative and considers the impact of the behavioural traits of sellers (the providers, consultants and advisors that determine the fund design and the supply and distribution chain) and buyers (employers and trustees on behalf of the employ...
Article
A recurring theme in monetary history is the conflict of trust and authority: the conflict between those who advocate a spontaneous monetary order determined by free exchange under the rule of law and those who wish to meddle with the monetary system for their own ends. This conflict is perhaps most clearly seen in the early 20th century controvers...
Article
Our ambition in this essay is to challenge received wisdoms about the importance of ‘useful’ management scholarship. Suggesting that usefulness and uselessness are contingent on issues of temporality and power, we advocate caution in assigning terms such as useful and relevant – they are inherently problematic, we argue, and should be viewed more a...
Article
Full-text available
Underfunding of defined benefit (DB) pension schemes is prevalent throughout the Western world, and no more so than Ireland. This paper examines underfunding of DB schemes and discusses alternative ways of overcoming this problem. It critically reviews alternative government sponsored insurance schemes including the US Pension Benefit Guaranty Corp...
Article
Full-text available
This paper carries out a comparative analysis of the calibration and performance of a variety of options pricing models. These include Black and Scholes (J Polit Econ 81:637–659, 1973), the Gram–Charlier (GC) approach of Backus et al. (1997), the stochastic volatility (HS) model of Heston (Rev Financ Stud 6:327–343, 1993), the closed-form GARCH pro...
Article
Full-text available
The huge economic significance of longevity risk for corporations, governments, and individuals has begun to be recognized and quantified. By virtue of its size and prevalence, longevity risk is the most significant life-related risk exposure in financial terms and poses a potential threat to the whole system of retirement income provision. This ar...
Article
Defined Benefit (DB) pension schemes have prevalence in certain countries, most notably the UK. This is also the case for Ireland. Underfunding of DB pension schemes is prevalent throughout the Western world, and no more so than Ireland. This paper examines underfunding of DB schemes in Ireland and discusses alternative ways of overcoming this prob...
Article
Full-text available
The mortality rate dynamics between two related but different-sized populations are modeled consistently using a new stochastic mortality model that we call the gravity model. The larger population is modeled independently, and the smaller population is modeled in terms of spreads (or deviations) relative to the evolution of the former, but the spr...
Article
In a series of papers and speeches in the early years of the Millenium, Federal Reserve Governor Ben Bernanke outlined what the Fed might do when faced with near zero interest rates.1 A distinguished historian of the Great Depression, Dr. Bernanke's main concern was to ensure that 'it' never happened again, and the key element of his program was to...
Article
Full-text available
In Matthew 25: 14-30, Jesus recounts the Parable of the Talents, the story of how the master goes away and leaves each of three servants with sums of money to look after in his absence. He then returns and holds them to account. The first two have invested wisely and give the master a good return, and he rewards them. The third, however, is a wicke...
Article
Full-text available
The Basel regime is an international system of capital adequacy regulation designed to strengthen banks' financial health and the safety and soundness of the financial system as a whole. It originated with the 1988 Basel Accord, now known as Basel I, and was then overhauled. Basel II had still not been implemented in the United States when the fina...
Article
Full-text available
Extreme asset price movements appear to be more pronounced over time and have major consequences for an economy's financial stability and monetary policies. This article investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking 14 major equity markets, the study illustrates similarities and...
Article
We use a case study of a pension plan wishing to hedge the longevity risk in its pension liabilities at a future date. The plan has the choice of using either a customized hedge or an index hedge, with the degree of hedge effectiveness being closely related to the correlation between the value of the hedge and the value of the pension liability. Th...
Article
Full-text available
This paper introduces a new framework for modelling the joint development over time of mortality rates in a pair of related populations with the primary aim of producing consistent mortality forecasts for the two populations. The primary aim is achieved by combining a number of recent and novel developments in stochastic mortality modelling, but th...
Article
Full-text available
This paper proposes a computationally efficient algorithm for quantifying the impact of interest-rate risk and longevity risk on the distribution of annuity values in the distant future. The algorithm simulates the state variables out to the end of the horizon period and then uses a Taylor series approximation to compute approximate annuity values...
Article
Full-text available
Basis risk is an important consideration when hedging longevity risk with instruments based on longevity indices, since the longevity experience of the hedged exposure may differ from that of the index. As a result, any decision to execute an index-based hedge requires a framework for (1) developing an informed understanding of the basis risk, (2)...
Article
Risk is an inherent feature of agricultural production and marketing and accurate measurement of it helps inform more efficient use of resources. This paper examines three tail quantile-based risk measures applied to the estimation of extreme agricultural financial risk for corn and soybean production in the US: Value at Risk (VaR), Expected Shortf...
Article
Full-text available
This paper discusses the financial risks faced by the UK Pension Protection Fund (PPF) and what, if anything, it can do about them. It draws lessons from the regulatory regimes under which other financial institutions, such as banks and insurance companies, operate and asks why pension funds are treated differently. It also reviews the experience w...
Article
This paper applies the extreme-value (EV) generalised pareto distribution to the extreme tails of the return distributions for the S&P500, FT100, DAX, Hang Seng, and Nikkei225 futures contracts. It then uses tail estimators from these contracts to estimate spectral risk measures, which are coherent risk measures that reflect a user’s risk-aversion...
Article
This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intra-day seasonality in returns and return volatilities under usual market...
Chapter
Many, if not most, individuals cannot be regarded as 'intelligent consumers' when it comes to understanding and assessing different investment strategies for their defined contribution pension plans. This gives very little incentive to plan providers to improve the design of their pension plans. As a consequence, pension plans and their investment...
Article
This paper examines the precision of estimators of Quantile-Based Risk Measures (Value at Risk, Expected Shortfall, Spectral Risk Measures). It first addresses the question of how to estimate the precision of these estimators, and proposes a Monte Carlo method that is free of some of the limitations of existing approaches. It then investigates the...
Article
Full-text available
Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their risk-aversion functions. To date there has been very little guidance on the choice of risk-aversion functions underlying spectral risk measures. This paper addresses this issue by examining two popular risk aversion functions, based...
Article
Full-text available
One of the more memorable moments of last summer's credit crunch came when the CFO of Goldman Sachs, David Viniar, announced in August that Goldman's flagship GEO hedge fund had lost 27% of its value since the start of the year. As Mr. Viniar explained, "We were seeing things that were 25-standard deviation moves, several days in a row."
Article
This paper measures and compares the tail risks of limit and market orders using Extreme Value Theory. The analysis examines realised tail outcomes using the Dealing 2000-2 electronic broking system based on completed transactions rather than the more common analysis of indicative quotes. In general, limit and market orders exhibit broadly similar...
Article
This paper presents non-parametric estimates of spectral risk measures applied to long and short positions in 5 prominent equity futures contracts. It also compares these to estimates of two popular alternative measures, the Value-at-Risk (VaR) and Expected Shortfall (ES). The spectral risk measures are conditioned on the coefficient of absolute ri...
Article
This paper applies an AR(1)-GARCH (1, 1) process to detail the conditional distributions of the return distributions for the S&P500, FT100, DAX, Hang Seng, and Nikkei225 futures contracts. It then uses the conditional distribution for these contracts to estimate spectral risk measures, which are coherent risk measures that reflect a user's risk-ave...
Article
Full-text available
This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market...
Chapter
Many, if not most, individuals cannot be regarded as ‘intelligent consumers’ when it comes to understanding and assessing different investment strategies for their defined contribution pension plans. This gives very little incentive to plan providers to improve the design of their pension plans. As a consequence, pension plans and their investment...
Article
This paper develops a framework for developing forecasts of future mortality rates. We discuss the suitability of six stochastic mortality models for forecasting future mortality and estimating the density of mortality rates at different ages. In particular, the models are assessed individually with reference to the following qualitative criteria t...
Article
This paper proposes a simulation-lattice procedure to estimate financial risk measures for option positions. The framework proposed can be applied to many different kinds of options, including exotic and vanilla options; it can take account of early exercise features; heavy tails in underlying processes; estimate different risk measures, including...
Article
This study sets out a backtesting framework applicable to the multiperiod-ahead forecasts from stochastic mortality models and uses it to evaluate the forecasting performance of six different stochastic mortality models applied to English & Welsh male mortality data. The models considered are the following: Lee-Carter’s 1992 one-factor model; a ver...
Chapter
This article provides a brief overview of Value at Risk (VaR). It defines the VaR and explains the parameters on which it is predicated. It explains the uses to which the VaR has been put, including its uses to determine risk targets and position limits, allocate capital, guide investment, trading and hedging decisions, remunerate traders managers,...
Article
Full-text available
Survivorship risk is a significant factor in the provision of retirement income. Survivor derivatives are in their early stages and offer potentially significant welfare benefits to society. This article applies the approach developed by Dowd et al. (2006), Olivier and Jeffery (2004), Smith (2005), and Cairns (2007) to derive a consistent framework...
Article
This article shows how to apply the theory of order statistics to estimate confidence intervals for quantile-based risk measures, a class that includes the VaR, expected shortfall., mid coherent, convex, and spectral risk measures. The proposed method can be applied to any parametric or nonparametric loss distribution, has a number of advantages re...