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Working Paper NumberTitle
2004-01 Risk-neutralizing statistical distributions: With an application to pricing reinsurance contracts on FDIC losses


Risk-neutralizing statistical distributions: With an application to pricing reinsurance contracts on FDIC losses - PDF 286k (PDF Help)

FDIC Center for Financial Research Working Paper No. 2004-01
Dilip B. Madan
Haluk Unal
September 2004
    Abstract

    This paper proposes methods for obtaining risk neutral distributions when only the statistical density is observed. We employ renormalized exponential tilts and estimate the tilt coefficients from related options markets. Particular emphasis is placed on reinsurance losses for which we price in closed form using the Weibull extreme value distribution. The procedure is illustrated in detail for FDIC losses.

    CFR research programs: risk measurement, deposit insurance




Last Updated 9/16/2004 cfr@fdic.gov