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Mean reversion in net discount ratios: a study in the context of fractionally integrated models.(Report)
- Article from:
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Journal of Risk and Insurance
- Article date:
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March 1, 2008
- Author:
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Copyright informationCOPYRIGHT 2008 American Risk and Insurance Association, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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ABSTRACT
This article introduces a new alternative to the ongoing debate about stationarity and mean reversion of the net discount ratio. Modeling the net discount ratio as a fractionally integrated (I(d)) process, we apply recently developed frequency domain estimation procedures and find evidence that the net discount ratio is an I(d) process with 1/2 [less the or equal to] d
INTRODUCTION
There has been a long-running and, at times, heated debate in the literature on the estimation of damages in negligent injury and wrongful death/survivor claims. In these cases the injured party loses all or part of his or her ability to earn future wages. The objective of tort law ...
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of the d-value, and, [d.sub.0,u], the greatest non-rejection
value at the 5% level for the alternative d>