Multiobjective Optimization for the Asset Allocation of European Nonlife Insurance Companies

Jarraya, Bilel; Bouri, Abdelfettah

doi:10.1002/mcda.1491

Cited by 5 publications

(2 citation statements)

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“…Following Färe et al (2005), Park and Weber (2006) and Jarraya and Bouri (2013), we adopt a quadratic functional form in the direction of parameterizing the directional output distance function (See Appendix).…”

Section: Modelmentioning

confidence: 99%

Shadow prices of non-performing loans and the global financial crisis

Tarchouna

Jarraya

Bouri

2019

JRF

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Purpose This paper aims to determine the opportunity cost borne by US commercial banks to reduce non-performing loans (NPLs) by one unit within the global financial crisis framework. Design/methodology/approach To achieve this aim, the authors use the directional output distance function to estimate the technical efficiency while considering NPLs as undesirable output. Then, they estimate the shadow prices of NPLs by using the envelope theorem and solving the revenue function. Findings The results indicate that medium-sized banks are the most efficient, while small banks are the most inefficient ones. Moreover, the shadow prices of NPLs of large banks are higher than those of small and medium-sized banks. This implies a more elevated cost when lessening bad loans in large banks. This is more prominent during the crisis given that the shadow prices of NPLs of large banks have risen sharply over that period. Practical implications Shadow prices have important managerial implications given that they display the amounts of required reduced revenues to lessen NPLs. Accordingly, banks’ managers are called to reduce these loans by paying more attention when choosing their customers. Originality/value With the absence of an observable market price for bad loans in financial literature, the shadow price notion offers an adequate measure to evaluate them. To the best of authors’ knowledge, this is the first study that provides an estimation of the shadow price of NPLs in the US banking sector.

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Section: Modelmentioning

confidence: 99%

Shadow prices of non-performing loans and the global financial crisis

Tarchouna

Jarraya

Bouri

2019

JRF

Self Cite

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“…They concluded that the evolutionary algorithms are excellent options to find good solutions in short computation times. A multi-objective framework for EU-based non-life insurance companies is developed in [26] in order to find the best asset allocation that maximizes simultaneously expected utility and technical efficiency. In this manner, it is possible to consider both shareholders', as well as customers' objectives.…”

Section: Introductionmentioning

confidence: 99%

Multi-Objective Stochastic Optimization Programs for a Non-Life Insurance Company under Solvency Constraints

Kaucic¹,

Daris²

2015

Risks

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In the paper, we introduce a multi-objective scenario-based optimization approach for chance-constrained portfolio selection problems. More specifically, a modified version of the normal constraint method is implemented with a global solver in order to generate a dotted approximation of the Pareto frontier for bi-and tri-objective programming problems. Numerical experiments are carried out on a set of portfolios to be optimized for an EU-based non-life insurance company. Both performance indicators and risk measures are managed as objectives. Results show that this procedure is effective and readily applicable to achieve suitable risk-reward tradeoff analysis.

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