Olivier Le Courtois

Olivier Le Courtois
emlyon business school | EMLYON · Department of Economics, Finance and Control

PhD, FSA, CFA, CERA, FRM

About

67
Publications
4,823
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398
Citations
Additional affiliations
January 2004 - present
emlyon business school
Position
  • Professor of Finance and Insurance

Publications

Publications (67)
Article
Full-text available
This article introduces a new approach for dealing with the diversification/concentration risk of fixed income assets. Because Government bonds, corporate bonds, and mortgage backed securities constitute a large proportion of the assets of institutional investors in most countries, it is important to be able to determine the number of lines/issuers...
Article
We conduct a broad study of stochastic dominance efficiency on financial markets. We show that in the long run the vast majority of 17 equity market indices across the globe are inefficient at order two relative to their industry components. In the short run, the past stochastic dominance relation between the index and sub-indices predicts future d...
Article
Full-text available
In this article, we develop a semi-analytical solution for a structural model that combines jump and regime switching risk. We use an Esscher transform that is applicable to regime switching double exponential jump diffusion to move from the historical world to the risk-neutral world. Further, we define and implement a matrix Wiener–Hopf factorizat...
Article
In this paper, we construct new valuation schemes for the liabilities and economic capital of insurance companies. Specifically, we first build a ‘SAHARA’ valuation framework based on Symmetric Asymptotic Hyperbolic Absolute Risk Aversion utility functions. Then, we construct a ‘SAHARA-CPT’ framework that incorporates the previous utility function...
Article
Bivariate risk apportionment is the preference for dispersing risks associated with two aspects of individuals’ well-being into different states of the world. In this paper, we propose an intensity measure of this preference by extending to the bivariate case the concept of marginal rate of substitution between risks of different orders introduced...
Article
Full-text available
Market risk regulations adopted in response to recent crises aim to reduce financial risks. Nevertheless, a large number of practitioners feel that even, if these rules seem to succeed in lowering volatility, they appear to rigidify the financial structure of the economic system and tend to increase the probability of large jumps: prudential rules...
Article
This paper develops a transform-based approach for the pricing of participating life insurance contracts with a constant or floating guaranteed rate. Our analysis incorporates credit, market (jump), and economic (regime switching) risks, where the evolution of the reference portfolio is described by a regime switching double exponential jump-diffus...
Article
Full-text available
The article Some Further Results on the Tempered Multistable Approach, written by Olivier Le Courtois, was originally published electronically on the publisher’s internet portal (currently SpringerLink) on 11 April 2018 without open access.
Article
Credit risk permeates the assets of most insurance companies. This article develops a framework for computing credit capital requirements under the constant position paradigm and taking into account recovery rates. Although this framework was originally derived under the Solvency 2 regulation, it also provides concepts that can be useful under othe...
Article
Full-text available
This article provides new results on the tempered multistable approach. After a preliminary section recalling the main definitions, we show the correspondence between a series representation and a characteristic function representation for asymmetrical field-based tempered multistable processes and for asymmetrical independent increments tempered m...
Article
Full-text available
This paper finds that seventeen equity market indices across the globe are stochastic dominance inefficient, nearly always at order three and often at order two, making them suboptimal for risk-averse and prudent investors. Strong values of aggregate economic indicators predict a higher likelihood of index efficiency for well-balanced economies, bu...
Chapter
There are fundamentally two different ways of viewing the uncertainty of financial asset prices in continuous time. The first assumes the principle of continuity, the second does not. This chapter develops the relationships connecting the Levy processes and extreme value theory (EVT). It begins by defining the modeling alternative and the challenge...
Article
The calculation of Net Asset Values and Solvency Capital Requirements in a Solvency 2 context–and the derivation of sensitivity analyses with respect to the main financial and actuarial risk drivers–is a complex procedure at the level of a real company, where it is illusory to be able to rely on closed-form formulas. The most general approach to pe...
Article
The effect of health status on portfolio decisions has been extensively studied from an empirical viewpoint. In this paper, we propose a theoretical model of individuals’ choice of financial assets under bivariate utility functions depending on wealth and health. Our model relies on the diffidence theorem, which pertains to the class of hyperplane...
Article
In this paper, we address portfolio optimisation when stock prices follow general Lévy processes in the context of a pension accumulation scheme. The optimal portfolio weights are obtained in quasi-closed form and the optimal consumption in closed form. To solve the optimisation problem, we show how to switch back and forth between the stochastic d...
Article
Full-text available
This article extends credibility theory by making quadratic adjustments that take into account the squared values of past observations. This approach amounts to introducing non-linearities in the framework, or to considering higher order moments in the computations. We first describe a full parametric approach and, for illustration, we examine the...
Article
In this paper, we show that risk vulnerability can be associated with the concept of downside risk aversion (DRA) and an assumption about its behavior, namely that it is decreasing in wealth. Specifically, decreasing downside risk aversion in the Arrow–Pratt and Ross senses are respectively necessary and sufficient for a zero-mean background risk t...
Article
Cet article présente le calcul de la Value-at-Risk et d’autres indicateurs de risque lorsque des processus de Lévy sont employés pour modéliser les dynamiques de rentabilités d’actifs. Nous proposons tout d’abord une nouvelle présentation des processus Variance Gamma avec dérive : nous les reconstruisons de manière originale en partant de la distri...
Article
Research characterizes most risk averters as prudent and temperate but devotes little attention to the study of risk lovers. The risk lovers who prefer to combine good with good are prudent and intemperate. This paper shows how the assumption of “combining good with good” can be relaxed, and how similar results can come from the consistency hypothe...
Article
Typical approaches incorporating jumps in financial dynamics, such as the Variance Gamma and CGMY models, can be made to depart from the i.i.d. hypothesis by using a stochastic clock. In such a context, the introduction of a dispersion of the clock is equivalent to the introduction of a dispersion of the volatility itself. A distinct route that yie...
Article
In this paper, we show that risk vulnerability can be associated with the concept of downside risk aversion (DRA) and an assumption about its behavior, namely that it is decreasing in wealth. Specifically, decreasing downside risk aversion in the Arrow–Pratt and Ross senses are respectively necessary and sufficient for a zero-mean background risk t...
Article
Full-text available
We develop a switching regime version of the intensity model for credit risk pricing. The default event is specified by a Poisson process whose intensity is modeled by a switching Lévy process. This model presents several interesting features. Firstly, as Lévy processes encompass numerous jump processes, our model can duplicate sudden jumps observe...
Article
This article tackles the management of a pension fund in presence of extreme risks. It first solves in quasi-closed form the fund optimal portfolio allocation when asset returns follow general Lévy processes. It then builds the link between the two most commonly used models to describe asset returns: log-returns and stochastic differential equation...
Article
Full-text available
The ability of standard executive stock options to incite managers to adequately select the assets of their firm has been extensively questioned by academics and practitioners. However, very few alternatives exist or have been proposed to better control the investment strategies of top managers. The present article studies the evaluation and sensit...
Article
Full-text available
In this paper we study the asset-liability management of an insurance company selling “participating contracts”. Participating contracts are typical insurance policies sold in Europe, in Japan or in North America. The payoff of a participating policy is linked to the portfolio and the surplus of the insurance company. We examine the impact of the c...
Article
This article examines certain types of saving institutions or insurance companies that are subject to surrender and default risks, in a stochastic interest rate context. In the setting under study, investors are endowed with an option to surrender. The goal of the article is to study how this option impacts the default risk of the issuing company a...
Article
In this article, we propose a new method to price numerically Parisian options by inversion of Laplace transform. We compare this method to other more traditional approaches (Monte-Carlo simulations and partial differential equation solving). We show that this method converges more rapidly and yields quasi-instantaneous answers to the valuation and...
Article
The Basle 2 Capital Accord issued by the Basle Committee on banking supervision has proposed a multiplier superior to 3 on banks' internal 99% 10-day Value-at-Risk calculated for market risk exposure. This ad hoc factor has not been fully explained and is poorly justified by arguing that the standard classical models of stock price dynamics do not...
Article
Full-text available
Le plan de cet article est le suivant. Dans une première partie, nous rappelons la logique à l'oeuvre dans la théorie de la diversification, telle qu'on la trouve dans tous les textes (articles et manuels) de finance usuels, dans le but de faire apparaître qu'elle repose sur une réduction du risque au seul moment d'ordre 2 et à l'application corrél...
Article
Full-text available
The purpose of this article is to value participating life insurance contracts when the linked portfolio is modeled by a jump-diffusion. More precisely, this process has a Brownian component and a compound Poisson one, where the jump size is driven by a double exponential distribution. Specifically here, the bankruptcy risk of the insurance company...
Article
Full-text available
The fall of AIG is another confirmation that the insurance busi-ness is not immune to bankruptcy. Contrary to the actuarial literature which postulates that insurance firms can survive forever, we believe that this is not the case, and that a realistic and business-oriented risk management approach needs to be designed in order to prevent the ac-tu...
Article
This article builds a new structural default model under the assumption that a firm’s assets return follows a dynamics displaying jumps of both signs. In essence, we expand the work of Hilberink and Rogers (itself an extension of the Leland and Toft framework), which deals only with negative jumps. In contrast, we make use of stable Lévy processes,...
Article
This paper develops a general valuation approach to price barrier options when the term structure of interest rates is stochastic. These products’ barriers may be constant or stochastic, in particular we examine the case of discounted barriers (at the instantaneous interest rate). So, in practice, we extend Rubinstein and Reiner [1991. Breaking dow...
Article
Full-text available
This study is devoted to the calculation of appropriate premia and loadings for participating contracts. Our analysis aims at extending the ideas of Buehlmann [2004], and is sequencing the fundamental works of Merton [1974], Longstaff and Schwartz [1995], Briys and de Varenne [1994, 2001]. Estimating safety loadings in a fair value context is an on...
Article
This article aims at linking conceptually the default puts of (risk-neutral) optional finance to the safety loadings of (historical) actuarial theory that typ-ically serve to reduce bankruptcy risk. We illustrate this study by detailing the contractual provisions underlying typical participating contracts (described and priced by Jørgensen [2001] o...
Article
This article builds a new structural default model under the assumption that assets returns follow dynamics displaying jumps of both signs. In essence, we expand the work of Hilberink and Rogers which is itself an extension of the Leland and Toft framework, but that deals only with negative jumps. We make use here of stable Lévy processes, and this...
Article
Full-text available
This paper focuses on historical and risk-neutral default probabilities in a structural model, when the firm assets dynamics are modeled by a double exponential jump diffusion process. Relying on the Leland [(1994a) Journal of Finance, 49, 1213–1252; (1994b) Bond prices, yield spreads, and optimal capital structure with default risk. Working paper...
Article
Full-text available
The purpose of this article is to design and price a new type of participating life insurance contract. Participating contracts are popular in the US and in European countries; they satisfy various covenants and obey various regulations depending on the country where they are issued. The standard literature is Briys and de Varenne [1994, 1997a] and...
Article
Full-text available
This article displays a study on the mutual insurance of bank deposits. A system where deposits are first insured by a consortium then by the Government is envisaged. We wish to compute the fair premia due to both the consortium and the Government. Various types of covenants aiming at making banks reduce their risks are detailed. These provisions c...
Article
Parisian options extend barrier options in that their covenant depends on the time the underlying spends beyond a given threshold. By their nature, they are hard to price and hedge, although some quite involved methods are available. Parisian options can be valued by four different methods: Monte Carlo simulations, lattices, partial differential eq...
Article
The purpose of this article is to value some life insurance contracts in a stochastic interest rate environment taking into account the default risk of the underlying insurance company. The participating life insurance contracts considered here can be expressed as portfolios of barrier options as shown by Grosen and Jørgensen [J. Risk Insurance 64...
Article
Full-text available
In this article, we examine to what extent Life Insurance Policyholders can be de-scribed as standard Bondholders. Our analysis extends the ideas of Bühlmann [2004], and sequences the fundamental advances of Merton [1974], Longstaff and Schwartz [1995], and Briys and de Varenne [1994, 1997b, 2001]. In particular, we develop a setup where life insur...
Article
Full-text available
The purpose of our paper is to develop a contingent-claim analysis allowing for the valuation of organized exchange memberships or seats. Relying on the Mertonian methodology and in particular on Margrabe options, our model prices seats as two uncorrelated components: a basis value common to all seats and a personal value which takes into account t...
Article
Full-text available
This paper focuses on the historical default probability in a struc- tural model with jumps, more precisely, when the firm assets dynam- ics are modeled by a double exponential jump diusion process. It relies on the Leland and Toft approach (see Leland (1994a, 1994b) and Leland and Toft (1996)) as formalized by Hilberink and Rogers (2002), explains...
Article
Full-text available
This article examines the impact that surrender risk can have on the de-fault of insurance companies. The companies that we study issue contacts similar to the ones studied earlier in the literature by Briys and de Varenne (2001), Grosen and Jorgensen (2000), or Bernard, Le Courtois and Quittard-Pinon (2005). They are subject to interest rate and d...

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Project (1)
Project
The aim of this project is to study the legacy of Mandelbrot, both from the point of view of the history of financial thought, the mathematical modelling of finance and the scientific controversies arising from Mandelbrot's hypotheses.