5.7.Felblum

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Author:
Exam9
ID:
67473
Filename:
5.7.Felblum
Updated:
2011-02-21 18:42:55
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Felblum
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Felblum
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  1. Differences btwn P&C and Life
    • Impact of inflation: life is nominal, P&C is inflation-sensitive
    • Impact of D matching on yield: P&C has shorter CF → more attention paid to tradeoff btwn extra yield offered by longer duration bonds
    • Disintermediaiton risk: not faced in P&C
    • Mark-to-mkt risk of long term bonds: riskier for P&C
  2. 2 ways to match assets and liabilities
    • Cash flow matching: cumbersome, inneficient, costly
    • Duration matching
  3. Loss reserve duration
    • Use pmt patterns, not inccured pmt loss
    • Discount rate = current yield on asset PF
    • Yield = on new investment
  4. Equity duration
    • D* = 1 / (k - g)
    • k = cost of capital, g = growth in dividends
  5. Factors causing common stock prices to fall in short run and rise in long run in response to incr in int rate
    • Value of assets
    • Demand pull vs supply push
    • Mkt demand for stocks

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