Journal of Insurance and Finance 2021 KCI Impact Factor : 0.67

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2015, Vol.26, No.3

  • 1.

    The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading

    woobaiklee | 2015, 26(3) | pp.3~56 | number of Cited : 3
    Abstract PDF
    To mitigate the problems related to the excessive speculation and high participation of retail investors in the KOSPI 200 options market, the Financial Services Commission raised the option multiplier for KOSPI 200 options to KRW 500,000 equal to five times prior multiplier since March 9, 2012. The implementation of new multiplier is evaluated as the policy that induces radical change in liquidity on Korean derivatives market. This paper attempts to examine how this increase of multiplier influences the lead-lag relationship between market liquidity and volatility of spot market employing VAR. The main results are summarized as followings: (1) The daily conditional volatility of spot market employing AR(1)-GARCH(1,1) significantly decreased during implementation of new multiplier. This implies that the disturbing factors that affect volatility weakened with shrinkage in liquidity due to new multiplier. (2) The bidirectional causal relations between change in put-call ratio and market volatility consists throughout the pre and post period. This shows that informed option trader implements the trading strategy that predict short-term volatility but uninformed trader also tends to follow volatility contemporaneously. (3) ITM option traders tends to lead more strongly the short-term volatility during the period of new multiplier. Meanwhile, speculative trading significantly decreased due to low volatility. Overall, the empirical results indicate despite shrinkage in liquidity due to new multiplier, the informational efficiency of option market is robust without deterioration.
  • 2.

    Is Risk Aversion Related to Asymmetric Information Suggested by Cheap Talk and Decision Making Time under Uncertainty?: Experimental Economics Approach

    Beum-Jo Park , Hong Chong Cho | 2015, 26(3) | pp.57~93 | number of Cited : 2
    Abstract PDF
    We propose a supplemented eliciting method of measuring risk aversion through a laboratory experiment to overcome disadvantages of the multiple pricing list format developed by Holt and Laury (2002) and to standardize the risk aversion ranking by quantile normalization. Our method does not adhere to any specific utility function and is free of the framing effect or the multiple switching problem. Furthermore, with the new measure of risk aversion, we examine how individuals change risk attitude and decision making time when they face new informational disadvantages, i.e., less information about asset markets than experts. Decision making time gets shorter and risk aversion rises significantly when individuals perceive themselves informationally disadvantaged.
  • 3.

    Ownership of Controlling Shareholders and Corporate Risk-Taking Behavior: Disciplinary Effect of Competitive Threat in Product Markets

    LEE JI HYE , Byun, Hee Sub | 2015, 26(3) | pp.95~139 | number of Cited : 9
    Abstract PDF
    This paper investigates how the competitive threat affects the relation between the ownership of controlling shareholders and corporate risk-taking behavior. Empirically, we confirm that the ownership of controlling shareholders has significantly negative effect on the level of corporate risk-taking. This result means that controlling shareholders change corporate risk-taking behavior based on their incentive structure from stock ownership. However, this relationship is not observed in more competitive product markets, while it appears in less competitive product markets. Thus, competitive threat can be considered as an external control mechanism to discipline the incentive of controlling shareholders, who want to pursue the private benefits. Meanwhile, the disciplinary effect of competitive threat is mainly observed in firms with weak internal corporate governance. This result implies that the weakness of internal control mechanisms is significantly complemented by product market competition.
  • 4.

    A Review on Issues of Insurable Interest and the Life Insurance

    Jung-Won Lee | 2015, 26(3) | pp.141~172 | number of Cited : 2
    Abstract PDF
    The Law Commission of England and Wales and the Scottish Law Commission (hereunder, ʻthe Law Commissionʼ) are undertaking a joint review of insurance contract law. In 2014, the Law Commission published "Issues Paper 10 Insurable Interest: updated proposals", of which revisited the issue of insurance interest. In the Paper, the Law Commission proposed several topics on life assurance. Firstly, a person should have an insurable interest in the life of another, irrespective of whether they can show economic loss. Secondly, an insured has an insurable interest where there is a reasonable prospect (or similar) that the insured will retain an economic benefit on the preservation of the life insured or incur an economic loss on death. Thirdly, there should be no statutory limit on the amount, which the insured may obtain insurance over the life insured. In sum, it can be said that the Law Commission proposed that the nature of certain relationship, which did not need evidences of economic losses, should extend beyond the self and spouse/civil partner categories, and certain limited extensions to the category of "natural affection", to cover parents insuring the lives of their children, and cohabitants insuring each other, subject to certain caveats. Additionally, the Law Commission stressed that there is no clear rationale for limiting the value of policies; therefore, the value of the particular policy and the cost of the premium will vary depending on the risk appetite of the respective parties. In the meantime, it seems that some Korean school introduces insurable interest to life insurance without exhaustive criticism and analysis. In light of the current english law reform, the definition of insurable interest is not self evidently clear, and it is still skeptical whether there will be any advantages for the modernization and development of Korean Insurance Law with the induction of insurable interest to life insurance. Instead of bringing into the definition of insurable interest to life insurance, it is strongly recommended any legal problems on this issue should be revised and modified in due course.
  • 5.

    The Proposal of Insurance Supervisory System with the Introduction of IFRS4

    OUH, CHANGSU | 2015, 26(3) | pp.173~220 | number of Cited : 3
    Abstract PDF
    There will be great change in the valuation of insurance liability with the introduction of IFRS4. IFRS4 used in GAAP will lead the fundamental change of valuation of liability in SAP and solvency margin system. In Korea, GAAP and SAP in insurance field are currently substantively same. However, introduction of IFRS4 may cause hardship to continue current unification of accounting system. It will be necessary to set up the relationship between GAAP and SAP. While the valuation method of liability is changing, the change of solvency margin system should be consistent with the liability system because current RBC is not consistent with IFRS4 liability system. As most of the actuarial provisions are influenced by the valuation method of liability, calculation of surrender cash value and profit and loss are also expected to change. In this paper, the international standards of valuation of liability and solvency margin are introduced. Based on these standards, this paper proposes the reasonable setup of the accounting system of GAAP and SAP, valuation methods of insurance liability, consistent solvency margin system, and related actuarial supervisory provisions.