ADVFN Logo

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for discussion Register to chat with like-minded investors on our interactive forums.

JUST Just Group Plc

105.20
-1.00 (-0.94%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Just Group Plc LSE:JUST London Ordinary Share GB00BCRX1J15 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -1.00 -0.94% 105.20 105.60 106.00 107.20 105.80 105.80 2,480,471 16:35:03
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Life Insurance 2.24B 129M 0.1242 8.53 1.1B
Just Group Plc is listed in the Life Insurance sector of the London Stock Exchange with ticker JUST. The last closing price for Just was 106.20p. Over the last year, Just shares have traded in a share price range of 67.00p to 107.20p.

Just currently has 1,038,702,932 shares in issue. The market capitalisation of Just is £1.10 billion. Just has a price to earnings ratio (PE ratio) of 8.53.

Just Share Discussion Threads

Showing 351 to 375 of 2000 messages
Chat Pages: Latest  20  19  18  17  16  15  14  13  12  11  10  9  Older
DateSubjectAuthorDiscuss
12/8/2018
19:05
@Jane Deer, moving to a deferment rate of 50bp has already cost the firm about £880m by my reckoning. If you look at p.83 of their SFCR, under 'other valuation differences', you can see where it seems to be parked, offset by transitionals.
eumaeus
12/8/2018
19:03
@Charlie, do you accept that neither the value of the deferment nor of the forward contract, which are nothing to do with option pricing, depend on hedging? Yes or no.
eumaeus
12/8/2018
18:59
Is JUST currently using a positive deferment rate of 50bps in its current internal models? So movingto 1% positive deferment rate (seemingly the minimum acceptable to the PRA) could lead to £160 million+. Increasing the volatility from 12% to 13% would add to these numbers. But if there were a 3year phase in then these numbers look just about manageable. The PRA does not appear to have an interest in reducing the matching ajustment - any attack on this (as Dowd would seem to want) would appear to have a much more significant impact on JUST’s capital position.
jane deer
12/8/2018
18:54
Well please write about why the Black-Scholes model works if the underlying is unhedgeable. You haven't really answered this point (nor have the PRA).

As I understand it, the surprising idea that the drift in the price of the underlying "drops out" of option valuation depends on hedging. Without this, the Black-Scholes argument doesn't work, and you have to do something else.

charlie
12/8/2018
17:32
Ford writes: "Perform the calculation this [Dowd/PRA] way and the difference is startling. Prof Dowd has computed an illustrative case for a 40 per cent loan to value mortgage compounding at 5 per cent. Bolt in future house price inflation of 4.25 per cent, as he believes at least one firm is doing, then the cost of the NNEG is just 3 per cent of the loan amount. Do it more prudently and the cost rises to a thumping 52 per cent. Apply that to the £10bn odd of mortgages that have been written in the past few years at rising loan-to-value ratios and you get a potential capital shortfall of billions.
eumaeus
12/8/2018
17:30
The link got mangled. In any case, google Eumaeus project and you can follow the story as it happens. Jonathan Ford (FT) has just released a new story on it today, explaining the logic behind the correct pricing.
eumaeus
12/8/2018
17:17
The chart linked to below shows, for each maturity t up to t=40, the present value of the loan value at maturity, which is upward sloping because loan rate is typically higher than risk free (!), and the present value of deferred possession, which is downward sloping because deferment means loss of income or use hxxp://eumaeus.org/wordp/wp-content/uploads/2018/08/upper-bound.jpg
eumaeus
12/8/2018
17:14
Correct, and the spot price is the forward rate, calculated as S.exp((r-q)t), where S is current house price. From first principles, the ERM price can never exceed either the present value of the strike, or the present value of deferred possession, as argued in SS 3/17.

Kevin and I are going to write something about this next week. Despite the careful explanation in his paper (and in SS 3/17 and CP 13/18) there is evident misunderstanding of the ideas behind the pricing.

eumaeus
12/8/2018
17:01
OK, the strike price is the loan increased at the interest rate,is that it? So the options at say age 95 and above are slightly in-the-money (but not deep in-the-money), relative to the house price now.

But that doesn't seem to help with the absence of hedging, and without that, I still don't see how the Black-Scholes argument works. I'm still preferring a quantile from a stochastic model.

charlie
12/8/2018
15:27
I mis-typed (1), but let's focus on (2). A NNEG, as modelled using Black 76, is a whole portfolio of options. Why would all of those options be out of the money? Think about how you would calculate the strike price.
eumaeus
12/8/2018
15:16
Both legs (1) and (2) refer to in-the-money options, but all extant NNEGs are surely out-of-the-money, so I'm just confused now! Have you mis-typed something??
charlie
12/8/2018
13:16
‘Without continuous hedging, the whole Black-Scholes edifice crumbles.’ Two problems with this. (1) it’s not even true even for in in the money option, so long as we can estimate the volatility, but the reason for that is subtle. (2) For deep in the money options, hedging is unnecessary. As CP 16/48 points out, we cannot violate the upper bound of the ERM value. Its present value cannot exceed either the present value of the loan, or present value of deferment. The proof of that does not rely on any hedging assumption whatsoever.
eumaeus
12/8/2018
12:19
I agree with Wilkie et al 2004:

"However, we consider that the enthusiasm of some for the mathematics of option pricing has caused many to miss the essential point, which we repeat: dynamic hedging is simply one investment strategy (out of many possible ones), and it can be shown to be good at replicating option payoffs. If dynamic hedging is not possible, for whatever reason, then the mathematically modelled option prices have no practical application, and cannot be used for calculating ‘fair values’.

It is a mistake to use option pricing mathematics for the assessment of values of options for which no hedging strategy could exist; one example is an option to purchase one particular piece of property if some planning consent is obtained; it is just not hedgeable."

The NNEG doesn't really seem to be hedgeable. Without continuous hedging, the whole Black-Scholes edifice crumbles.

charlie
12/8/2018
11:55
Having thought about it a bit more, I think the "adding up lots of probability-weighted options" approach may be OK, if mortality at the portfolio level is treated as deterministic. But this still seems a bit dodgy. Many scenarios I can think of with extremely bad outcomes for house prices (making the guarantee more likely to bite) are plausibly associated with extremely bad outcomes for mortality (making the guarantee less likely to bite).

I don't see that a stochastic model necessarily gives a higher value for the guarantee. Any sensible stochastic model for house prices must have positive HPI on average; so I do 10,000 simulations and take the cost of the guarantee in the 50th lowest simulation as my 1-in-200 reserve. It's not obvious that's more expensive than the Black formula.

charlie
11/8/2018
16:55
As pointed out below there is a very large market for deferments in the shape of the freehold/leasehold market. Are you going to pay someone to live in your house for 10, 20 years? That would involve a negative deferment rate.
eumaeus
11/8/2018
16:52
The standard approach is to weight each option by probability of exit and treat as standard European. This approach was recommended by the original 2005 ERM paper by the Institute.



Yes stochastic modelling (including for prepayment) gives a more accurate value but makes the guarantee more expensive.



As for autocorrelation, that doesn’t matter, and to include HPI drift would be to make the same mistake as using forecasting. The value of the ERM for long maturities has to converge upon the deferment curve. Don’t imagine the PRA didn’t think carefully about this.

eumaeus
11/8/2018
16:47
I also think there is something a bit dodgy about the argument that deferment price must be lower than the spot price.

Clearly there is no observable market for clean deferment prices. The only buyers prepared to engage in deferment-type transactions (when bundled with a loan) are apparently the LTM providers themselves. As such, arguments about a hypohetical buyer choosing between “possession & occupation/letting” now versus “possession after T years” seem to me only weakly persuasive, because they are entirely hypothetical.

Once one wanders into such hypothetical worlds, one can conceive of a separate class of buyer who want exposure to house prices, but do not want to occupy or to let, and welcome the opportunity to avoid Council tax and maintenance costs. There is no reason why the deferment price should be determined solely by the other class of hypothetical buyer in the previous paragraph.

charlie
11/8/2018
16:28
On a different tack, geometric Brownian motion seems an absurd model for house prices anyway. I really don’t see that this model is unambiguously “correct”;, and that a positive drift for HPI is unambiguously "wrong".

As a matter of public policy, if I made the rules, I would allow some positive HPI drift. Less than GDP, and less than historically, but I would allow something.

charlie
11/8/2018
16:25
Toy model. Customer age 60. Suppose mortality is a step function, 2.5% chance of dying each year, so dead by 100. (Obviously really deaths peak at about 80 and then decline, but I’m simplifying).

The PRA procedure adds up 40 options for the customer, each option probability-weighted at 2.5%. The result is an ensemble average. It only works if the options maturing at e.g. ages 98, 99, 100 are each from different “parallel worlds” as far as the geometric Brownian motion is concerned. It’s counting a separate quantum of randomness from each parallel world.

But this is not the situation. The possible maturities at e.g. ages 98, 99, 100 are really from one world, and highly correlated. The customer doesn’t have 40 options from parallel worlds each weighted 2.5%, he has one option from one random world, within which there is a random exercise date.

Does the PRA procedure get the right answer for this? Maybe it does, averaged over a portfolio of customers. But it’s not obvious to me.

charlie
11/8/2018
16:24
I think Numis are half-right. The PRA is also only half-right.

The NNEG is neither an American option (exercise at any time), nor a European option (exercise at a fixed maturity date). It's an option with a RANDOM maturity date.

As far as I can see this is not really addressed by Black 1976. (Is it by anyone else?)

CP13-18 para 3.20 suggests a procedure as follows: add up a series of Black 1976 options maturing in each successive year, each weighted by the exit probability (mainly risk of dying) for that year.

This seems, in effect, to be adding up a whole bundle of options for each underlying customer. But each customer has only one option (with a random exercise date).

Does the PRA procedure give a correct convolution of the randomness in the term of the option with the randomness of the geometric Brownian motion for price inherent in the Black formula? I’m not sure about this!

My intuition (which may be wrong!) is that an option with a random exercise date seems less valuable than one with a fixed exercise date.

Also, in general: (a) a portfolio of options is worth more than an option on a portfolio; and (b) a series of short-dated options is worth more than one longer-dated option.

Granted, the PRA procedure doesn’t correspond exactly to (a) nor (b). And I appreciate the PRA is probability-weighting all the options it’s adding up. But the “adding up a lot of options” aspect still smells to me like an over-valuation of the NNEG.

charlie
10/8/2018
10:59
P/EEV at current price is .45 on an EEV of 228.4. Some discount ! Hopefully the share price is more to do with August than serious problems. Sometimes when "funds" want out of a holding they just sell and go on selling until the holding has gone. Sounds mad but changes of fund manager, adjustment to the mandate of the fund manager force such things.The upshot in this case might be that the share price collapses because potential buyers are on holiday whilst the seller/s is/are not.Others are put off by the fall that has been helped along by bears and those worried by the PRA review and possible capital requirement.
Meanwhile the company gets on with its work and the shares wallow at 102p on a pe of six and a bit.Opportunity knocks

bolador
10/8/2018
10:23
I think there's an interesting angle here - if other insurers involved in LTM don't think the outcome will be 'too' penal then there's a chance to take out Just now at a massive discount to embedded value which may not last.

If they think it really is going to get messy then they just sit and wait for more damage to the share price before moving on them.

scrapheap
10/8/2018
06:44
‘Especially when the existence of negative equity implies that exercising this option results in no financial gain for themselves or their estate’. If the borrower’s estate does not exercise the option then they pay the negative equity themselves. If they exercise the option, then there will be a huge financial gain, so the statement is plain wrong. The distinguishing feature of an option is the max(0, X) feature. The borrower or the estate has the right, but not the obligation to sell the house at the rolled up loan value X, so owns a put option which the lender will exercise for them. So it’s an option.
eumaeus
10/8/2018
06:22
The PRA consultation is only about pricing and valuation.

I saw the Numis report and seemed quite a muddle to me. Confusing an American option (which can be exercised at any time) with a European option (exercisable only at expiry).

eumaeus
10/8/2018
05:50
eumaeus My point about HPI is whether the NNEG will be called on not about the pricing of it. Over time house prices should increase at least in line with the growth in the economy. The key thing is the interaction of the mortgage role up with when/if the mortgage has to be redeemed by death or moving out with a fall in house prices. Of course this isn't impossible and can be mitigated by low interest rates and low LTVs. JUST's products are at the high end of both, but not all their mortgages have these characteristics and current sales are at lower interest rates than those of, say 5 years ago.

One other interesting point from the Numis note above on the NNEG pricing:
"Option pricing. We are unsure why the PRA want to value NNEG guarantees using
an option pricing formula, when there are no embedded options within the product.
This seems to fall foul of two principles of option pricing: the mortgagee cannot choose to exercise this option other than by dying (or going into care). Secondly there is no financial gain for the mortgagee or its estate in exercising this option."

This makes the point effectively, that people may not "redeem" by death or moving if the mortgage exceeds the house price and that allows for some recovery in house prices. In that respect they are most unlike how those with options tend to behave and the frictional costs (moving costs, stamp duty, or time to get probate on death etc) are much higher than that faced by an option holder. Numis put it rather humourously as: "We believe there are very few people who would make the serious lifestyle choice of going into care or
dying, on the basis that they could exercise an option against a mortgage lender, during a period of depressed property values. Especially when the existence of negative equity implies that exercising this option results in no financial gain for themselves or their estate."

18bt
Chat Pages: Latest  20  19  18  17  16  15  14  13  12  11  10  9  Older

Your Recent History

Delayed Upgrade Clock