HIPERFITPhD Defence: Maj-Britt Nordfang
Title: Preferences, behaviour and the design of financial contracts
Thesis: To be published later
Presenter: Maj-Britt Nordfang, PhD. Student, MATH/University of Copenhagen
Time: June 16, 2017, 14:00
Place: HCØ, Auditorium 4, Universitetsparken 5, 2100 Copenhagen Ø
Committee:
- Prof. Rolf Poulsen (chairman), University of Copenhagen
- Ass. Prof Matthias Albrecht Fahrenwaldt, Heriot Watt University
- Prof. An Chen, Ulm University
Abstract
Today’s insurance and financial markets are characterized by an ever-increasing complexity and product choice. How do we assist individual household consumers in making informed choices about their financial positions in these markets? This thesis consists of five separate research papers that are all in some way concerned with the design and regulation of financial contracts in relation to consumer preferences under uncertainty. First, the design of mortgage products in relation to consumer preferences in a market with a stochastic interest rate is examined. We derive the (extreme) characteristics of an investor who optimally chooses either a fixed rate mortgage or an adjustable rate mortgage. We also show how adjustable rate mortgages by construction have a build-in cap on the adjustable rate in contrast to what could be perceived from standard financial advice. Next, optimal investments of an investor with time-inconsistent preferences in a Black-Scholes market is explored. We derive the optimal investment strategy of an investor with a scaled mean-variance objective and derive an approximation to the optimal investment strategy of an investor who continuously measures utility with respects to an updated wealth-dependent reference point. Finally, the implications of a ban on risk-classification in an insurance market with a low-risk and high-risk customer groups with homogeneous utility preferences is examined and discussed. We illustrate how solidarity in premiums between the low- and a high-risk group of insurance customers may lower the premiums of the high-risk customers without affecting the premium level of the low-risk customers when a solvency capital requirement is imposed. The research papers highlight how the risk preferences of individual consumers relate to the design of financial contracts and the regulation hereof. Through the insights gained in the thesis, we intend to contribute to a better understanding of the complex financial decisions faced by individual consumers today.
Biography
Maj-Britt Nordfang is a PhD student at MATH/University of Copenhagen under supervision of Professor Mogens Steffensen, MATH. The PhD thesis work has been co-supervised by Trine Krogh Boomsma, MATH, and Ken Friis Larsen, DIKU.
Host: DIKU and HIPERFIT (Prof. Mogens Steffensen)