Book contents
- Frontmatter
- Contents
- List of contributors
- Foreword
- Preface
- Acknowledgments
- Part I General overview
- Part II Models
- 5 An economic approach to valuation of single premium deferred annuities
- Commentary by D.F. Babbel
- 6 The optimal portfolio system: targeting horizon total returns under varying interest-rate scenarios
- 7 Optimization tools for the financial manager's desk
- 8 A flexible approach to interest-rate risk management
- 9 Currency hedging strategies for US investment in Japan and Japanese investment in the US
- Commentary by Y. Beppu
- Part III Methodologies
- Index
Commentary by D.F. Babbel
Published online by Cambridge University Press: 09 February 2010
- Frontmatter
- Contents
- List of contributors
- Foreword
- Preface
- Acknowledgments
- Part I General overview
- Part II Models
- 5 An economic approach to valuation of single premium deferred annuities
- Commentary by D.F. Babbel
- 6 The optimal portfolio system: targeting horizon total returns under varying interest-rate scenarios
- 7 Optimization tools for the financial manager's desk
- 8 A flexible approach to interest-rate risk management
- 9 Currency hedging strategies for US investment in Japan and Japanese investment in the US
- Commentary by Y. Beppu
- Part III Methodologies
- Index
Summary
Asay, Bouyoucos, and Marciano (ABM) have applied the same technology that has been successful in the financial valuation of callable bonds and mortgage-backed securities (MBS) to the valuation of single premium deferred annuities (SPDAs). The application of this technology to insurance product valuations is natural, and long overdue, as it engenders an understanding of the economic importance of policy options that traditional models have heretofore not captured well.
My remarks concerning the ABM study cover three areas: possible extensions to the ABM approach, practical considerations with regard to the interest rates and associated cashflows used in setting up the binomial tree, and potential misapplications of the ABM approach in portfolio structuring.
People familiar with the MBS valuation models used by Wall Street firms will recognize certain buzz words used by ABM and understand at once the particular version of the model that was used. However, it may prove helpful to offer a clarifying comment for the reader less familiar with the extant models.
- Type
- Chapter
- Information
- Financial Optimization , pp. 132 - 135Publisher: Cambridge University PressPrint publication year: 1993