Browsing by Author "Giuricich, Mario Nicolo"

Now showing 1 - 3 of 3
  • Thumbnail Image
    Item
    Open Access
    Benefits of a Tree-Based model for stock selection in a South African context
    (2014) Giuricich, Mario Nicolo; Bosman, Petrus
    Quantitative investment practitioners typically model the performance of a stock relative to its benchmark and the stock's fundamental factors in a classical linear framework. However, these models have empirically been found to be unsuitable for capturing higher-order relationships between a stock's return relative to a benchmark and its fundamental factors. This dissertation studies the use of Classification and Regression Tree (CART) models for stock selection within the South African context, with the focus being on the period from when the Global Financial Crisis began in early 2007 until December 2012. By utilising four types of portfolios, a CART model is directly compared against two traditional linear models. It is seen that during the period focused upon, the portfolios based on the CART model deliver the best excess return and risk-adjusted return, albeit in most cases modestly above the returns delivered by the portfolios based upon the linear models. This is observed in the hedge-fund style and long-only portfolios constructed. Moreover, it is observed that the CART-based portfolios' returns are not correlated with those from the linear-model-based portfolios. This observation suggests that CART models offer an attractive option to diversify model risk within the South African context.
  • Thumbnail Image
    Item
    Open Access
    Index-linked catastrophe instrument valuation
    (2018) Giuricich, Mario Nicolo; Burnecki, Krzysztof; Ouwehand, Peter; Platen, Eckhard
    This thesis proposes four contributions to the literature on index-linked catastrophe instrument valuation. Invariably, any exercise to find index-linked catastrophe instrument prices involves three key steps: construct a suitable arbitrage-free valuation model, estimate the parameters for the underlying loss process and simulate the instrument prices. Chapters 3 to 5 of this thesis loosely follow this process. In Chapter 3 we propose an index-linked catastrophe bond pricing model, which pervades in subsequent chapters. We furthermore show how, under certain assumptions, our model can use real-world catastrophe loss-data to find arbitrage-free, index-linked catastrophe bond prices. Chapter 4 demonstrates how we estimate parameters for the catastrophe-related insuranceloss process on which our pricing model relies. In practice, data from such insurance-loss processes is both left-truncated and heavy tailed. We build on ? ]’s procedure for modelling left-truncated data via a compound non-homogeneous Poisson process, and modify their fitting process so that it becomes systematically applicable in the context of heavy-tailed data. We close this chapter by presenting an importance sampling technique for simulating index-linked catastrophe bond prices. Chapter 5 treats the new problem of finding simple, closed-form expressions for indexlinked catastrophe bond prices. By using the weak convergence of compound renewal processes to α-stable Levy motion, we derive weak approximations to these catastrophe bond prices. ´ Their applicability is then highlighted in the context of our catastrophe-bond pricing model. Chapter 6 deviates from the ambit of catastrophe bond pricing, and considers a new type of insurance-linked security, namely the contingent convertible catastrophe bond. Our foremost contribution is that we comprehensively formalise the design and features of this instrument. Subsequently, we derive analytical valuation formulae for index-linked contingent-convertible catastrophe bonds. Using selected parameter values in line with earlier research, we empirically analyse our valuation formulae for index-linked contingent-convertible catastrophe bonds.
  • Thumbnail Image
    Item
    Open Access
    Pricing index-linked catastrophe bonds via Monte Carlo simulation
    (2016) Van der Merwe, Justin; Giuricich, Mario Nicolo; Ouwehand, Peter
    The pricing framework used in this dissertation allows for the specification of catastrophe risk under the real-world measure. This gives the user a great deal of freedom in the assumptions made about the underlying catastrophe risk process (referred to in this dissertation as the aggregate loss process). Therefore, this dissertation aims to shed light on the effect of various assumptions and considerations on index-linked CAT bond prices based on the Property Claims Services (PCS) index. Also, given the lack of a closed-form solution to the pricing formulae used and the lack of a liquidly-traded secondary market, this dissertation compares two approximation methods to evaluate expressions involving the aggregate loss process: Monte Carlo simulation and a mixed-approximation method. The two price-approximation methods are largely consistent and seem to agree particularly in the upper quantiles of the distribution of the aggregate loss process. Another key consideration is that the third-party estimating the catastrophe losses in North America, PCS, only records catastrophe losses above $25 million. This dissertation therefore also explores the issue of left-truncated data and its effect when estimating the parameters of the aggregate loss process. For this purpose, it introduces a non-parametric approach to compare, in sample, the results of ignoring the threshold and taking it into account. In both these exercises, it becomes apparent that very heavy-tailed distributions need to be used with caution. In the former case, the use of very heavy-tailed distributions places restrictions on the distributions that can be used for the mixed-approximation method. Finally, as a more realistic avenue this dissertation proposes a simple stochastic intensity model to compare with the deterministic intensity model and found that, by parsimony, the deterministic intensity seems to provide a reasonable model for the upper quantiles of the aggregate loss process. The key results of this dissertation are that the pricing of CAT bonds depends on the quantiles of the aggregate loss process, as in evident both when comparing the approximation methods and the deterministic and stochastic intensity functions, and that left-truncation should be taken into account when valuing index-linked CAT bonds using data from PCS.