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Title: Allocating Overseas: Risk Assessment of Currency Hedging in Taiwan Life Insurance Industry
Authors: 張士傑
Chang , Shih-Chieh
Lee,  Yen-Kuan
Tu, Wei Hsuan and Chang-ye
Contributors: 風管系
Keywords: overseas investment; interest-sensitive; foreign-exchange reserves; non-deliverable forward; basket hedging; shortfall
Date: 2019-04
Issue Date: 2021-06-25 09:45:06 (UTC+8)
Abstract: A persistent low-interest-rate environment has had a notable impact on the life insurance industry. For reducing the negative interest-rate spread problems, Taiwan life insurer’s asset allocation shift to international diversifies. In this paper, overseas investment is incorporated into the asset portfolio to reflect the growing practice of life insurers taking offshore risks for yield enhancement. We calibrate contract parameters and surplus distribution is investigated through feasible hedge strategies. Foreign-exchange volatility reserves, forward hedge, and basket hedge are compared based on the shortfall measures under risk-neutral valuation. The shareholder’s claim and default put options are compared. The numerical results show that FX volatility reserves are the most effective instrument for controlling currency risk, followed by basket hedge. By contrast, fully forward hedge is cost enhanced and might not generate the advantage of carry trade.
Relation: Asia-Pacific Journal of Risk and Insurance, Vol.14, No.1, pp.1-16
Data Type: article
DOI 連結:
Appears in Collections:[風險管理與保險學系 ] 期刊論文

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