Fall 2004 Finance 4366 Weblog

New career/internship opportunities website for the Department of Finance, Insurance and Real Estate

As of today, the Department of Finance, Insurance and Real Estate has a new website which lists career and internship opportunities for students majoring in Finance, Financial Services & Planning, Real Estate, and Risk Management & Insurance.  The address for this website is http://129.62.162.212/jobs.  Also, it can be accessed directly from the FIRE Department's home page, which is located at http://finance.baylor.edu.  If you are in the market for a career or internship opportunity, be sure to check this website out.  I have previously posted such information on the class weblog, but from this point on I will refrain from doing so; no sense in duplicating efforts!

Business Ethics Forum

The Business Ethics Forum is Nov. 3-5. Visit www.baylor.edu/businessethics for details.

Voter registration in Texas

I would like to encourage everyone to exercise their rights as U.S. citizens and vote in the upcoming November 2 election.  As a technical detail, in order to vote in the upcoming November 2 election, you need to be a registered voter.  The last day you can register for this election is Monday, October 4.

The Internet makes it that much easier to register.  If you have established residency in Waco or some other community in the state of Texas, then you can register for the vote by visiting the Texas Secretary of State website.  Once you get there ,you can print out a registration form and mail it to the voter registrar in your county of residence.

If you are not currently a registered voter, please take a few minutes to register so that you can exercise your right to vote on November 2!

Securitization Analyst Position with Prudential Mortgage Capital Company

Prudential Mortgage Capital Company is currently looking for an Analyst for its Securitization Group in Newark, New Jersey. Participating in a three-year Analyst program, incumbents will be involved in real estate and CMBS analysis and will interact with PMCC originators and underwriters, rating agencies, and investors.

Job Skills:

• Strong financial background; real estate experience a plus.
• Excellent analytical skills.
• Organized and detail oriented.
• Risk taker interested in a challenge.
• Works well with a diverse range of tasks and varying due dates.
• Broad knowledge of computers including, but not limited to, Excel and Word.

Job Function:

• Maintain internal CMBS research and analysis database.
• Perform CMBS research to provide market summaries and commentary to management.
• Work with rating agencies, investment banks, and investors to provide information and answer questions regarding  bond collateral.
• Interact with regional underwriting and production specialists.
• Work with third party database provider to extract information from loan and property documents.
• Perform quality control check of data to ensure accuracy of information provided to investors.
• Analyze data to determine market trends.
• Ad-hoc data and spreadsheet requests.
• Direct, daily contact with senior management in a highly energized environment.  

Prudential is an Equal Opportunity/Affirmative Action Employer and is committed to diversity in its workforce.

Please send all resumes and requests to:

Michael Barsky

100 Mulberry St. Gateway Center 4 , Fl 2

Newark, NJ 07102

E-mail: michael.barsky@prudential.com

Fax: 973-367-8155

Today's Gamma Iota Sigma meeting

Today's Gamma Iota Sigma meeting will be held at 4:00 p.m. in Cashion 406.  Ms. Allison Keeton from St. Paul Travelers Insurance in Hartford, CT, will be speaking about her company as well as the property casualty industry in general.  St. Paul Travelers is keenly interested in hiring graduating seniors into entry level underwriting positions in their field office in the Metroplex area, so graduating seniors in particular may benefit from making this connection.

Hints for solving the 3rd problem on problem set #3

The 3^rd problem on problem set #3 is conceptually similar to the gambling problem presented on pages 38-41 of the lecture note entitled "Decision Making under Risk and Uncertainty, part 2.  Here, instead of determining the optimal size of the bet (B^*), you need to find that optimal allocation of your initial wealth W₀ = $1000 to (risky) stock and (safe) bond investments; in other words, since you plan to invest $1,000a in the stock and $1,000(1-a) in the bond, you need to need to find the value for a which maximizes expected utility.
 

The problem is based on the following facts:

• U(W) = ln W
• Current bond and stock prices are B₀ and S₀ respectively. 
• End-of-period bond price is B₁= B₀(1.06) with probability 1.0.
• End-of-period stock price is S₁ = S₀(1.4) with probability .6 and S₁ = S₀(.6) with probability .4. 

In order to compute expected utility of wealth, you must first determine state-contingent wealth (W_s).  Since there is a 60% chance that the stock increases in value by 40%, a 40% chance that the stock decreases 40%, and a 100% chance that the bond increases in value by 6%, this implies the following:

• 60% of the time, W_s = aW₀(1.4) + (1-a)W₀(1.06) = a1,000(1.40) + (1-a)1,000(1.06) = a1400 + (1-a)1060 = 1060 + 340a.
• 40% of the time, W_s = aW₀(.6) + (1-a)W₀(1.06) = a1,000(.60) + (1-a)1,000(1.06)] = a600 + (1-a)1060 = 1060 - 460a.

Therefore, expected utility is:

E(U(W)) = .6 ln[1060 + 340a] + .4 ln[1060 - 460a].

It is up to you to solve for the optimal value of a.  This requires solving the first order condition, which involves differentiating E(U(W)) with respect to a, setting the result equal to 0 and solving for a.

Full-Time Credit Analyst Position with American Bank in Waco

American Bank is currently seeking a qualified candidate to fill the position of full-time credit analyst.  Please review the responsibilities and requirements listed below.  If you should have any questions, contact information follows the description below:

POSITION: FULL TIME Credit Analyst
MAJOR RESPONSIBILITY: Monitor commercial lending relationships through financial statement analysis, site inspections, and other duties

PRIMARY DUTIES:

• Input financial statements into software program.
• Perform detailed analysis of statements to identify potential needs and trends.
• Develop analytical memorandum.
• Work closely with Loan Officers to prepare loan packages for committee presentation.
• Support lending staff by monitoring collateral and performing site inspections.

SPECIFIC REQUIREMENTS:

• Proficiency in Excel and Word
• Ability to communicate financial concepts both verbally and written
• Bachelor's degree in Accounting or Finance (graduating seniors may also apply)
• GPA of at least 3.0

This position is now open.

To apply, please send a resume and cover letter to:
Human Resources
P.O. Box 154068
Waco, TX  76715-4068
hr@ambankwaco.com
(254) 867-7611

Catastrophe risk summary and recommended reading

Here is a summary of the various articles I have written concerning public policy in the context of the disastrous hurricane season suffered by the state of Florida:

• 09.07.04: Financial Implications of Hurricanes - This article provides some insight concerning the evolution of public policy in the post-Andrew world.  Because of persistent regulatory suppression of insurance rates, economic theory suggests that over time, product quality will likely deteriorate and insurers can be expected to exit the market (see Harrington (1992)).  For all practical purposes, this is what has occurred in the Florida homeowners insurance market.  Clearly, there has been a shifting of risk away from private insurers and toward government and policyholders. What has resulted is a rather ad hoc set of risk sharing arrangements which no one particularly likes and very few people understand.
• 09.08.04: Catastrophes and Moral Hazard: The Case of Florida Windstorm Risk - This article explains why public disaster relief, however well intentioned, may make matters worse in the long term by undermining incentives for firms and individuals to select "economically efficient" levels of private insurance and loss mitigation.
• 09.09.04: The double deductible problem in Florida - Here, you will find my "proposal" concerning policy regulation reform; i.e., why not offer consumers a choice between the status quo policy form and an alternative policy form that enables consumers to insure against aggregate losses? This is a workable reform, assuming that the rate suppression problem can also be properly addressed.
• 09.10.04: Reinsurance reinstatement option - This article discusses an important contractual issue that is looming in the market for catastrophe reinsurance which may end up being considerably more significant economically than the "double deductible" problem (i.e., given the amount of catastrophe exposure this season, this important aspect of "fine print" may result in quite a few insolvencies).
• 09.17.04: More on double deductibles - This article argues that in order to "fix" the Florida insurance market, regulatory reform needs to address pricing issues as well as policy forms. Specifically, 1) the rate suppression problem needs to be properly addressed so that rates accurately reflect the expected cost of risk, and 2) consumers ought to have a broader set of choices concerning policy forms.

For people who are interested in reading more about public policy as it pertains to catastrophe risk, I highly recommend two books: 1) Catastrophe Insurance: Consumer Demand, Markets, and Regulation, and 2) When All Else Fails: Government As the Ultimate Risk Manager. Finally, I also highly recommend Martin Grace's weblog.