Faculty of Actuarial Science & Insurance Seminar with Debbie Falden (University of Liverpool)

Abstract:
An investor's risk aversion is a fundamental element in financial decision-making and preferences but lacks a standardised calibration method. We propose an approach to measure the risk aversion of an investor managing a diverse portfolio that includes pension savings, real estate, and free funds. We utilise the investor's real asset allocation as the optimal strategy, assuming the investor's preferences follow a power utility function (CRRA utility function). We calibrate a risk aversion parameter by building on Merton's formulas for optimal investment strategies. For pension savings, we account for the present value of future premiums, which results in an optimal investment strategy consistent with real life-cycle pension products. Realistic and stable risk aversions are calibrated by constructing a customised risky fund aligned with the investor's preferences. Disparities in risk aversion across financial categories are examined by certainty equivalents, and a numerical study with a real Danish pension portfolio emphasises the practical applications of our results.
 
The talk is based on a working paper with Professor Mogen Steffensen (University of Copenhagen) and Jens-Philip Dehn-Toftehoej (Datasolvr ApS)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4898823
 

Biography:

Debbie is currently a Lecturer at the Department of Mathematical Sciences at the University of Liverpool since 2023. Originating from Denmark, she studied her Undergraduate, Master and PhD in insurance mathematics at the University of Copenhagen. The PhD was part of a collaboration between the IT company Edlund, the University of Copenhagen, and the IT-University Copenhagen, which involved simulation-based projection models. Debbie obtained her PhD degree in 2022 under the supervision of Mogens Steffensen. Afterwards, she worked as a postdoc at the University of Copenhagen for one year, considering a project on risk aversion and stochastic control theory in collaboration with FinTech companies Dreamplan and Datasolvr.

Her main areas of research are on risk calculation, valuation and stochastic control theory for pension, health and life insurance. She is particularly interested in preferences (normative economics) and realised behaviour (positive economics) in the optimal control of insurance risk, product design and investments. Debbie is also interested in applying theoretical knowledge and research findings to real-world problems and the interplay between theory and practice. Furthermore, she has experience with and an interest in Machine learning.

Faculty Events | Website | View More Events

Contact the organizers