Starting from the Merton framework for firm defaults, we provide theanalytics and robustness of the relationship between defaultprobabilities and default correlations. We show that loans with higherdefault probabilities will not only have higher variances but also highercorrelations with other...

We re-examine insurance purchases when life insurance and life annuities carry loads. The life cycle literature says that it is optimal to participate in these insurance markets throughout life, even under loads. A life annuity phase backs directly onto a life insurance phase. However, the...

The Liikanen Group proposes contingent convertible (CoCo) bonds as a potential mechanism to enhance financial stability in the banking industry. Especially life insurance companies could serve as CoCo bond holders as they are already the largest purchasers of bank bonds in Europe. We develop a...

The Liikanen Group proposes contingent convertible (CoCo) bonds as a potential mechanism to enhance financial stability in the banking industry. Especially life insurance companies could serve as CoCo bond holders as they are already the largest purchasers of bank bonds in Europe. We develop a...

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between loans. As a consequence,...

Starting from the Merton framework for firm defaults, we provide the analytics and robustness of the relationship between default correlations. We show that loans with higher default probabilities will not only have higher variances but also higher correlations between loans. As a consequence,...