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on Risk Management |
| By: | David Crainich (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The paper analyzes the propensity to seek protection against health risks through insurance contracts and savings. We propose a theoretical model that characterizes the joint demand for these two risk management instruments when individuals are exposed to a disease that has financial and health consequences. We then establish the conditions under which reduced wealth and deteriorated health have a negative effect on this joint demand. Regarding the specific effect of health status on the propensity to take out insurance and save, recent experimental studies indicate that these conditions are likely to be met in practice, raising the question of financial protection for the most vulnerable individuals. |
| Keywords: | health status, insurance, precautionary savings, health risk |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05538857 |
| By: | Srikumar Nayak |
| Abstract: | Credit risk scoring must support high-stakes lending decisions where data distributions change over time, probability estimates must be reliable, and group-level fairness is required. While modern machine learning models improve default prediction accuracy, they often produce poorly calibrated scores under distribution shift and may create unfair outcomes when trained without explicit constraints. This paper proposes Calibrated Credit Intelligence (CCI), a deployment-oriented framework that combines (i) a Bayesian neural risk scorer to capture epistemic uncertainty and reduce overconfident errors, (ii) a fairnessconstrained gradient boosting model to control group disparities while preserving strong tabular performance, and (iii) a shiftaware fusion strategy followed by post-hoc probability calibration to stabilize decision thresholds in later time periods. We evaluate CCI on the Home Credit Credit Risk Model Stability benchmark using a time-consistent split to reflect real-world drift. Compared with strong baselines (LightGBM, XGBoost, CatBoost, TabNet, and a standalone Bayesian neural model), CCI achieves the best overall trade-off between discrimination, calibration, stability, and fairness. In particular, CCI reaches an AUC-ROC of 0.912 and an AUC-PR of 0.438, improves operational performance with Recall@1%FPR = 0.509, and reduces calibration error (Brier score 0.087, ECE 0.015). Under temporal shift, CCI shows a smaller AUC-PR drop from early to late periods (0.017), and it lowers group disparities (demographic parity gap 0.046, equal opportunity gap 0.037) compared to unconstrained boosting. These results indicate that CCI produces risk scores that are accurate, reliable, and more equitable under realistic deployment conditions. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.06733 |
| By: | Kul B. Luintel (Cardiff Business School, Cardiff University); Jose L. Torres (Department of Economics, University of Malaga) |
| Abstract: | We develop a general equilibrium framework in which a commercial banker constrained by capital adequacy requirements creates a special purpose vehicle (SPV) to hold securitized assets off its balance sheet. By separating the bank and SPV, the banker circumvents regulation, creating a gap between statutory and effective capital ratios. The model incorporates loan-to-value and collateral constraints with credit risk to examine interactions between financial and real sectors over the business cycle. Securitization is expansionary, increases off-balance-sheet lending under tighter regulation, amplifies credit risk, and raises welfare in the steady state. |
| Keywords: | Financial crisis; securitization; special purpose vehicles; DSGE models; credit risk |
| JEL: | E32 E44 G2 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2026/2 |
| By: | Jean-Michel Do Carmo Silva (EESC-GEM - Grenoble Ecole de Management) |
| Abstract: | Major contemporary risks – notably climate change, cybercrime, pandemics and wars – are disrupting the traditional insurance model, which is seen as a mechanism for financing residual risks. They raise questions about their insurability and the ability of companies to maintain their economic and societal role. How do insurance law and practices address, or should they address, the role of insurance in a risk management system designed by companies to respond to the societal transitions of our century? Firstly, the restructuring of insurance law and practices concerns the balance of interests at stake. While the logic of protecting the collective interests of policyholders remains, the evolution of extreme risks reveals its limitations. A societal approach is emerging, based on risk sharing between insurers, policyholders and public authorities. Secondly, the restructuring is also technical. Traditional insurance, based on mutualisation and compensation after assessment, is proving insufficient for correlated or poorly understood risks. The rise of parametric insurance, which provides compensation based on predefined indices, is examined, including the legal issues it raises. Some players offer integrated prevention and protection services (cybersecurity, climate diagnostics), transforming insurance into a lever for resilience rather than simply outsourcing risk. |
| Abstract: | Vers une recomposition du rôle de l'assurance dans un système de gestion des risques conçu par l'entreprise Résumé : les grands risques contemporains -notamment le dérèglement climatique, la cybermalveillance, les pandémies et les guerres -bouleversent le modèle traditionnel de l'assurance, envisagé comme mécanisme de financement des risques résiduels. Ils poussent à se questionner à propos de leur assurabilité et de la capacité des compagnies à maintenir leur rôle économique et sociétal. Comment le droit et les pratiques assurantielles se saisissent-ils ou doivent-ils se saisir du rôle de l'assurance dans un système de gestion des risques conçu par l'entreprise afin de répondre aux transitions sociétales de notre siècle ? Premièrement, la recomposition du droit et des pratiques assurantielles concerne l'équilibre des intérêts en présence. Si la logique de protection de l'intérêt collectif des assurés perdure, l'évolution des risques extrêmes révèle ses limites. Une approche sociétale émerge, fondée sur le partage du risque entre assureurs, assurés et pouvoirs publics.Deuxièmement, la recomposition est également technique. L'assurance traditionnelle, fondée sur la mutualisation et l'indemnisation après expertise, se révèle insuffisante pour des risques corrélés ou mal connus. L'essor de l'assurance paramétrique, qui indemnise sur la base d'indices prédéfinis, est examiné, y compris les questions juridiques qu'elle soulève. Certains acteurs proposent des services intégrés de prévention et de protection (cybersécurité, diagnostic climatique), transformant l'assurance en levier de résilience plutôt qu'en simple externalisation du risque. |
| Keywords: | Public-private partnerships, Organizational approach to law, Parametric insurance, Transformation of the insurer's role, Major contemporary risks, Assurance paramétrique, Transformation du rôle de l'assureur, Approche organisationnelle du droit, Partenariat public-privé, Grands risques contemporains |
| Date: | 2026–01–25 |
| URL: | https://d.repec.org/n?u=RePEc:hal:gemptp:hal-05543694 |
| By: | Cicilia Anggadewi Harun (Bank Indonesia); Danny Hermawan (Bank Indonesia); Citra Amanda (Bank Indonesia); Annes Nisrina Khoirunnisa (Bank Indonesia) |
| Abstract: | Amid the rapid progression of the digital transformation era, central banks are increasingly expected to not only harness emerging opportunities but also navigate and manage the growing complexity of associated risks in an effective and systematic manner. This study aims to identify and analyze optimal risk mitigation strategies within the context of digital transformation, employing a systems thinking approach and the Bayesian Network (BN) method. The risks analyzed are categorized into five main types: technological, financial, regulatory, cultural, and operational risks. We surveyed the officers in charge in IT risk mitigation to indicate the initial level of optimal risk mitigation for the high classification and medium classification as a starting point and to gain the parameters for the dynamics. Operational risk emerges as the most dominant factor influencing mitigation effectiveness, thereby underscoring the need to prioritize strong internal governance arrangements. This is followed by technological risk, which is an inseparable aspect of the digital transformation process, thus requiring the strengthening of infrastructure and cybersecurity. Scenario analysis using expert judgment can simulate an increase in optimal mitigation by strengthening six key risk nodes. Furthermore, a combination of low technological risk, enhanced system security, low third-party risk, and reduced cybersecurity vulnerabilities is shown to be the most influential set of factors driving effective mitigation. These findings underscore the importance of structured and sustainable mitigation strategies, particularly in strengthening digital security systems and operational risk management, to ensure a secure and sustainable digital transformation within central banks, or public institutions in general. |
| Keywords: | Risk Mitigation, Central Bank, Digital Transformation, Cybersecurity, Operational Risk |
| JEL: | D81 F55 G32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:idn:wpaper:wp212025 |
| By: | David Crainich (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Léontine Goldzahl (IÉSEG School Of Management [Puteaux]); Florence Jusot (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique); Doriane Mignon (University of Manchester [Manchester], NTNU - Norwegian University of Science and Technology = Norges Teknisk-Naturvitenskapelige Universitet = Norjan teknis-luonnontieteellinen yliopisto) |
| Abstract: | The paper investigates the role of two demand-side determinants of long-term care insurance: correlation preference and relative preference for quality of life over wealth. We model the effect of those preferences on the joint decision to buy long-term care and long-term care insurance contract. We test the model using data from a laboratory experiment in France. While the experimental results offer only partial support for the theoretical predictions - specifically, correlation aversion does not account for over-insurance - our analysis provides evidence that correlation seeking and the relative preference for quality of life over wealth explain the limited uptake of long-term care insurance. |
| Keywords: | risk preference, Laboratory experiment, Long-term care insurance demand |
| Date: | 2025–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05536893 |
| By: | Mengzhong Ma; Te Bao; Yonggang Wen |
| Abstract: | We document the first systematic evidence of negative spillover effects in crypto asset returns across blockchains. Using on-chain data from Ethereum, Solana, Binance Smart Chain, Arbitrum, and Avalanche (2022-2025), we show that surges on one chain often coincide with declines on others, in contrast to the positive co-movements typical of equity markets. These spillovers intensify during attention shocks, proxied by chain activity and extreme return events, and persist after controlling for global equity returns, interest rates, and Bitcoin. Nonlinear factor models reveal that attention-driven capital reallocation, rather than common information, underlies these dynamics. Our findings introduce a new form of cross-market linkage, attention-induced substitution, that shapes risk transmission in crypto markets. The results carry implications for portfolio diversification, systemic risk measurement, and regulation of token launches that may trigger cross-chain capital flight. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.23762 |
| By: | Nishimura, Y. (University of Osaka); Pestieau, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium) |
| Abstract: | As income rises, the risk of disability in old age declines, while life expectancy increases. These correlations strengthen the case for public long-term care (LTC) insurance over public pension systems. However, this perspective shifts when considering family solidarity—specifically, the informal care provided by spouses and children to elderly relatives. When viewed through the lens of altruistic caregiving motives, the argument for social LTC insurance becomes more nuanced. The interplay between formal and informal care is a key factor in shaping optimal policy. In this paper, we demonstrate that when family members reliably provide informal care, the design of a comprehensive public LTC system depends on the existence of a private insurance and on the degree of substitutability between informal and formal care. |
| Keywords: | Long-term care ; mortality risk ; disability risk ; informal care |
| JEL: | H2 H5 |
| Date: | 2025–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2025012 |
| By: | Gleb Kozliakov; Emile A. Marin; Sanjay R. Singh (Department of Economics, University of California Davis) |
| Abstract: | Can idiosyncratic risk explain the equity premium? We revisit this question using a novel measure of imperfect risk sharing, implied by a large class of heterogeneous agent models, constructed using household-level panel data. We identify a group of households - with relatively high income but low net-worth - whose consumption is sufficiently volatile and risky to explain 94% of the observed U.S. Sharpe ratio for an elasticity of intertemporal substitution of 0.2. In contrast, the consumption dynamics of high net-worth individuals predict a negative Sharpe ratio so do not constitute the relevant pricing factor, consistent with models featuring wealth motives. |
| Keywords: | uninsurable idiosyncratic risk, heterogeneous agents, wealth dynamics, equity premium |
| JEL: | G12 B52 E21 |
| Date: | 2026–03–12 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:377 |
| By: | Joshua Blonz; Mallick Hossain; Benjamin J. Keys; Philip Mulder; Joakim A. Weill |
| Abstract: | We use 70 million policies linked to mortgages and property-level disaster risk to show that credit scores impact homeowners insurance premiums as much as disaster risk. Homeowners with low credit pay 24% more for identical coverage than high–credit score homeowners. Leveraging a natural experiment in Washington State, we find that banning the use of credit information considerably weakens the relationship between credit score and pricing. We discuss the role of credit information in pricing and show that, although insurance is often overlooked in discussions of home affordability, a low credit score increases premiums roughly as much as it raises mortgage rates. |
| JEL: | D14 G22 G51 Q54 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34848 |
| By: | Andrew Atkeson; Fabrizio Perri; Jonathan Heathcote |
| Abstract: | We show that, to a first-order approximation, estimates of fluctuations in Shiller’s fundamental price relative to observed price depend primarily on forecasts of long-horizon expected returns. Researchers using different measures of cash flow and valuation may reach different conclusions about the extent to which values fluctuate excessively relative to fundamentals, but that is only because return forecasts based on different cash-flow-to-value measures will be different. Using U.S. equity data, we demonstrate that the amount of persistence in expected returns, rather than the amount of short-run return predictability, is the key determinant of implied excess volatility. Disagreements about stock market valuation therefore reduce to disagreements about long-run expected returns. |
| JEL: | E0 G12 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34923 |
| By: | Sebastien Lleo; Wolfgang Runggaldier |
| Abstract: | This paper bridges reinforcement learning (RL) and risk-sensitive stochastic control by introducing a tractable exploration mechanism for policy search in risk-sensitive portfolio management, with known and unknown model parameters, that yields an endogenous relative-entropy regularization. We construct a discrete-time risk-sensitive benchmarked investment model. This model combines a factor-based asset universe with periodic portfolio rebalancing. Exploration is incorporated through user-specified Gaussian perturbations to baseline (exploitative) controls. The risk-sensitive stochastic control problem is solved analytically using the Free Energy-Entropy Duality. The Duality recasts the control problem as a linear-quadratic-Gaussian game and introduces a natural penalty for exploration. This approach yields simple sufficiency conditions for optimality. It also induces intuitive bounds on exploration based on risk sensitivity, asset covariance, and rebalancing frequency. Additionally, the optimal investment strategy can be interpreted through the lens of fractional Kelly strategies. By connecting risk-sensitive control theory and RL, this work provides a principled parametric family for policy-gradient implementations, guiding the design of RL methods. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.00738 |
| By: | Adam Copeland; Owen Engbretson |
| Abstract: | Securities dealers play a central role intermediating funds in the U.S. short-term money markets. This intermediation involves risk, which can be mitigated by holding buffers of liquid securities. The cost of holding these buffers—the liquidity risk premium—is driven by the opportunity cost of holding money and so is influenced by monetary policy. We use detailed data on the pricing of repurchase agreements (repo), the main contract used to provide secured funding in the money markets, to measure by how much changes in monetary policy affect the liquidity risk premium embedded in repo pricing. The results imply that both changes in administrative rates and in aggregate reserves have effects on this risk premium and that this relationship is nonlinear. Using the average values of rates and reserves in 2024, the estimated coefficients predict that a 100-basis-point increase in the interest rate on reserve balances results in a 0.9 basis point increase in the liquidity risk premium—a 10 percent increase in the spread charged by securities dealers to their clients. The same effect on this risk premium can be achieved by a $429 billion decrease in the aggregate reserves. |
| Keywords: | repo; liquidity risk premium; rate pass-through; short-term funding |
| JEL: | G23 E58 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102916 |
| By: | Hongwei Xu; John R. Logan; Todd K. Gardner |
| Abstract: | In the United States, grandparents who live with and provide primary care to their grandchildren have emerged as a particularly vulnerable group since the 1990s. Using confidential data from the U.S. Census Bureau and Social Security Administration, this study linked individuals aged 50 years or older from the 2000 census long-form sample to their death records from 2000–2019 (weighted n = 64, 027, 000) and examined the longitudinal association between coresident grandparenting status and mortality for non-Hispanic Whites, non-Hispanic Blacks, Hispanics, and Asians. We found consistently higher rates of mortality for White coresident grandparents and lower rates for Asian coresident grandparents, regardless of the duration of primary caregiving, compared to their peers without coresident grandchildren. We also found increased risks of mortality among Hispanic long-term primary caregivers but reduced risks among Black short-term primary caregivers, compared to their peers without coresident grandchildren. |
| Keywords: | caregiver, coresident, grandparent, mortality, race, ethnicity |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:26-13 |
| By: | Gregory Phelan (Williams College); Thomas Ruchti (Virginia Tech); ; |
| Abstract: | ""As blockchains shift from energy-hungry Proof-of-Work to capital-intensive Proof- of-Stake, they trade electricity costs for a new vulnerability: the risk of a capital run that can destabilize consensus and security. We model investors who choose between staking their coin to earn rewards or exiting to cash out, potentially triggering mass withdrawals. These “staking runs†are more likely when protocols are weak, when failure would hit coin prices hard, or when staking rewards are low. Leverage wors- ens things: margin calls accelerate exits and amplify run dynamics. Longer lock-up periods slow the run but may not prevent it. Previous research shows that low re- wards are good for protocol security. We show they also raise the risk of a run. A run on a major Proof-of-Stake chain—like Ethereum—could destabilize the entire crypto ecosystem, threatening DeFi platforms that depend on it."" |
| Date: | 2025–09–02 |
| URL: | https://d.repec.org/n?u=RePEc:wil:wileco:2025_118 |