Computing semiparametric bounds on the expected payments of insurance instruments via column generation

2016/01/09 by Robert Howley, Robert Storer, Howley, Robert +5
Economics, Econometrics and Finance · Mathematics · #91G20 #FOS: Computer and information sciences #FOS: Economics and business #Methodology (stat.ME) #Pricing of Securities (q-fin.PR) #msc:91G20 #q-fin.PR #stat.ME

paper · pdf · doi:10.48550/arxiv.1601.02149

arxiv created 2016/01/09 · arxiv updated 2016/01/12

Abstract

It has been recently shown that numerical semiparametric bounds on the expected payoff of fi- nancial or actuarial instruments can be computed using semidefinite programming. However, this approach has practical limitations. Here we use column generation, a classical optimization technique, to address these limitations. From column generation, it follows that practical univari- ate semiparametric bounds can be found by solving a series of linear programs. In addition to moment information, the column generation approach allows the inclusion of extra information about the random variable; for instance, unimodality and continuity, as well as the construction of corresponding worst/best-case distributions in a simple way.

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