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Designing a new model for measuring the risk and return of the insurance industry index based on the Markov approach

Document Type : Original Research Paper

Authors

1 Department of Economic Sciences, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

2 Department of Economic Sciences, Faculty of Economics, Salami Azad University, Central Branch, Tehran, Iran

Abstract

Purpose: Designing a comprehensive and practical model to calculate the market risk of the insurance industry index in the stock market. The secondary goal is to test the behavior of the aforementioned index of regime transitions in different time periods.
Methodology: The method used to achieve the goal is to use the "value at risk" approach by combining the Markov regime process in the majority of GARCH family models.
Findings: The results of the present research show that the risk of the insurance industry index depends on the regime transitions and has both a feedback effect and a leverage effect. Also, the regime behavior of the efficiency of this industry is based on the distribution function t and it is transferred between regimes with different probabilities.




Conclusion: The 6-stage mechanism designed in this research has advantages such as the ability to consider regime transitions, leverage effect, and feedback effect based on symmetric and asymmetric distribution functions. The result of the research shows that the designed model has a higher power than the conventional models in measuring the risk of return of the insurance industry index.

Keywords

References
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Iranian Journal of Insurance Research
Volume 8, Issue 3 - Serial Number 29
July 2019
Pages 200-217
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