In recent years, considerable effort has been directed toward establishing the nature of the investment behaviour of life insurance companies. In this dissertation an extended portfolio analysis model was developed for the simultaneous determination of the efficient composition of insurance and investment activities of a life insurance company. This was done within a model that takes advantage of the existing finance foundations and the concepts and techniques of modern demand system analysis. Unlike current models which used quadratic programming techniques and are interested in the construction of efficient sets, we have used a utility maximization approach. A two parameter portfolio model was constructed utilizing elements of utility theory and of the theory of insurance. The model provided us with the proportion of assets held in the balance sheet as well as which liabilities are used to raise the necessary capital. The model developed has sufficient empirical content to yield hypotheses about life insurance portfolio behaviour and thus was tested using appropriate econometric techniques. A comparative static analysis yielded elasticities of substitution between financial assets and liabilities. The estimation of these elasticities in the context of a flexible functional form model, forms a central part of this dissertation. More specifically, by utilizing a mean-variance portfolio framework and a general Box-Cox utility function we were able to model the demand for assets and liabilities. by an insurance company. On empirical grounds we found that, in general, the square root quadratic utility function best fits the data. We also tried to evaluate the square root quadratic approximation by showing that, broadly speaking, it yields signs for elasticities of substitution which are consistant with the theory. A by-product of the model developed is the ability to compare stock and mutual life insurance companies. The common belief that mutual companies follow a riskier path in the way they conduct their business was supported by the results in this study. The results obtained from the study are-of significant importance since life insurance companies have substantial obligations to millions of households in the economy. Furthermore, despite the extraordinary decline in the importance of the life insurance industry in the bond and mortgage markets during the sixties and the seventies, the industry is still a major supplier of funds to those markets. / Thesis / Doctor of Philosophy (PhD)

>Magister Scientiae - MSc / The Basel Committee published its proposals for a revised capital adequacy framework(the Basel II Capital Accord) in June 2006. One of the main objectives of this framework is to improve the incentives for state-of-the-art risk management in banking, especially in the area of credit risk in view of Basel II. The new regulation seeks to provide incentives for greater awareness of differences in risk through more risk-sensitive minimum capital requirements based on numerical formulas. This attempt to control bank behaviour has a heavy reliance on regulatory ratios like the risk-based capital adequacy ratio (CAR). In essence, such ratios compare the capital that a bank holds to the level of credit, market and operational risk that it bears. Due to this fact the objectives in this dissertation are as follows. Firstly, in an attempt to address these problems and under assumptions about retained earnings, loan-loss reserves, the market and shareholder-bank owner relationships, we construct continuous-time models of the risk-based CAR which is computed from credit and market risk-weighted assets (RWAs) and bank regulatory capital (BRC) in a stochastic setting. Secondly, we demonstrate how the CAR can be optimized in terms of equity allocation. Here, we employ dynamic programming for stochastic optimization, to obtain and verify the results. Thirdly, an important feature of this study is that we apply the mean-variance approach to obtain an optimal strategy that diversifies a portfolio consisting of three assets. In particular, chapter 5 is an original piece of work by the author of this dissertation where we demonstrate how to employ a mean-variance optimization approach to equity allocation under certain conditions.

貨幣需求理論中，長期利率與短期利率常被用來作為貨幣持有之機會成本的變數。然 究竟那一種利率較為適用？在學理上，這個問題帶來很多爭論。近幾年來，一些經濟 學家主張貨幣需求函數只考慮長期利率或考慮短期利率均不恰當，貨幣需求函數應該 針對整個利率結構考慮。這種貨幣需求─利率結構理論，在文獻上又有兩種分析方式 ：一種為：INVENTORY APPROACH，另一種為MEAN- VARIANCE APPROACH 。 本文第一章探討貨幣持有與機會成本間的關係。第二、三章分別就上述兩種APPROACH 作一探討；並就台灣資料作實證分析。篛四章討論採用多利率變數時在計量上所遭遇 的問題及其解決方式。第五章為結語。

此篇論文利用馬可夫狀態轉換模型實證出在歐元區的股票市場中，以規模溢酬、價值溢酬以及市場溢酬建構的投資組合存在兩個不同的情境狀態。以歐元區市場溢酬和規模溢酬建構的投資組合(SMB portfolios)在牛市存在較高的平均報酬，另一方面以價值溢酬建構的投資組合(HML portfolios)則在熊市有較高的平均報酬。而以規模溢酬、價值溢酬以及歐元區市場溢酬建構的投資組合，其報酬率變異數在熊市皆比牛市來得高。由於此篇論文實證出不論在樣本內或樣本外的測試中，以規模溢酬以及價值溢酬建構的投資組合，其特色反轉投資策略皆優於買入並持有的投資策略，因此本篇論文建議，在歐元區以規模因素（size factor）及帳面價值與市價比因素（book-to-market factor）為考量建構投資組合時，考慮規模溢酬以及價值溢酬在不同情境狀態下的反轉異常現象是重要且不可忽視的課題。 / This paper documents the presence of two regimes in the joint distribution of stock returns on European market premium portfolio and portfolios tracking size- and value effects in the Euro area. The mean returns of the EMU market portfolio and SMB portfolios are higher in the bull state while the mean return of the HML portfolio is larger in the bear state. Volatilities of the EMU market portfolio, SMB portfolio and the HML portfolio are all larger in the bear state compared to the bull state. This paper uses the Markov regime-switching model to generate the switching signal of market, size and value portfolios in the stock market and reallocates the market, size and value portfolios in the stock market by the mean-variance approach. Since both in the in-sample and out-sample test, the performance of the style rotation strategy outperforms style consistent strategy of the SMB portfolio and HML portfolio, this paper proposes that when analyzing investments in returns of size and value portfolios in the European market, it is important for us to account for anomalies for size and value effects in European market under different regimes. In the regime-switching VAR(1) model to account for the net capital flow predictability on the stock returns of EMU market, SMB and HML portfolios and the interrelationships among these variables. The result shows that adding the European Union net capital flow in relation to the economy's size as the predictor variable to the regime switching VAR(1) model, it improves the asset allocation outcomes both in the in-sample and out-sample test. Furthermore, this paper has found that both in the bull and bear states, the impulse response function shows that a shock of one standard deviation of net capital inflows last month will reduce the EMU market return up to near three months. Besides, the net capital inflow shock in European stock market will generates appreciation of companies with low book-to-market ratios (growth stocks) and large-sized firms in the bull state, while it generates appreciation of companies with high book-to-market ratios (value stocks) in the bear state.