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

Robert Howley, Robert Storer, Juan Vera and Luis F. Zuluaga

Papers from arXiv.org

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.

Date: 2016-01
New Economics Papers: this item is included in nep-cmp and nep-ias
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