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Marco Corazza
Manfred Gilli
Cira Perna
Claudio Pizzi
Marilena Sibillo
Editors

Mathematical and
Statistical Methods
for Actuarial Sciences
and Finance

eMAF 2020
Mathematical and Statistical Methods for Actuarial
Sciences and Finance
Marco Corazza · Manfred Gilli · Cira Perna ·
Claudio Pizzi · Marilena Sibillo
Editors

Mathematical and Statistical

Methods for Actuarial
Sciences and Finance
eMAF2020
Editors
Marco Corazza Manfred Gilli
Department of Economics Geneva School of Economics
Ca’ Foscari University of Venice and Management (GSEM)
Venice, Italy University of Geneva
Geneva, Switzerland
Cira Perna
Department of Economics and Statistics Claudio Pizzi
University of Salerno Department of Economics
Fisciano, Salerno, Italy Ca’ Foscari University of Venice
Venice, Italy
Marilena Sibillo
Department of Economics and Statistics
University of Salerno
Fisciano, Salerno, Italy

ISBN 978-3-030-78964-0 ISBN 978-3-030-78965-7 (eBook)

https://doi.org/10.1007/978-3-030-78965-7

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature
Switzerland AG 2021
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether
the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse
of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and
transmission or information storage and retrieval, electronic adaptation, computer software, or by similar
or dissimilar methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specific statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book
are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or
the editors give a warranty, expressed or implied, with respect to the material contained herein or for any
errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional
claims in published maps and institutional affiliations.

This Springer imprint is published by the registered company Springer Nature Switzerland AG
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
Preface

This volume presents a collection of peer reviewed papers selected from over one
hundred and ten presented at the International Conference eMAF2020—Mathemat-
ical and Statistical Methods for Actuarial Sciences and Finance.
eMAF2020 is the ninth edition of an international biennial series of scientific meet-
ings, started in 2004 on the initiative of the Department of Economics and Statistics
of the University of Salerno. The idea behind this series is that the cooperation
and contamination between mathematicians and statisticians working in actuarial
sciences and finance could improve the research on these topics. The effectiveness
of this idea has been proved by the wide participation in all the editions, which, in
order, have been held in Salerno (2004, 2006, 2010 and 2014), in Venice (2008, 2012
and 2020), in Paris (2016) and in Madrid (2018).
Originally, the conference was supposed to be physically held in Geneva, in April
2020. But, due to the now sadly famous COVID-19 pandemic, it was temporarily
suspended. The Steering Committee of the conference, after considering all possible
alternatives, decided to hold the conference remotely. (“e” in eMAF2020 stands for
“electronic”). Thus, eMAF2020 was streamed through the Zoom platform offered by
the Department of Economics of the Ca’ Foscari University of Venice on September
18, 22 and 25, 2020. Despite the remote format, an unexpected number of participants
and presenters attended the virtual rooms of eMAF2020.
This volume covers a wide variety of subjects: artificial intelligence and machine
learning in finance and insurance, behavioral finance, credit risk methods and models,
dynamic optimization in finance, financial data analytics, forecasting dynamics of
actuarial and financial phenomena, foreign exchange markets, insurance models,
interest rate models, longevity risk, models and methods for financial time series anal-
ysis, multivariate techniques for financial markets analysis, pension systems, port-
folio selection and management, real-world finance, risk analysis and management,
trading systems and others.
Of course, both eMAF2020 and this volume would not be possible without the
collaboration of the members of the Scientific and Organizing Committees, without
the support of the sponsors, namely, the Association for Mathematics Applied to
Social and Economic Sciences (AMASES) and Egonon SA—Risk management and

v
vi Preface

advisor, and without the help of several partners, namely, the Computational and
Metodological Statistics working group, the Venice centre in Economics and Risk
Analytics for public policies (VERA) of the Ca’ Foscari University of Venice, the
Centre of Quantitative Economics of the Ca’ Foscari University of Venice, Springer
Nature, and the Società Italiana di Statistica (SIS). To all of them, our thanks.
Finally, we are pleased to inform you that the Steering Committee is already
working for the next edition in 2022.
We look forward to seeing you.

Venice, Italy Marco Corazza

Geneva, Switzerland Manfred Gilli
Salerno, Italy Cira Perna
Venice, Italy Claudio Pizzi
Salerno, Italy Marilena Sibillo
November 2020
Contents

A Comparison Among Alternative Parameters Estimators

in the Vasicek Process: A Small Sample Analysis . . . . . . . . . . . . . . . . . . . . . 1
Giuseppina Albano, Michele La Rocca, and Cira Perna
On the Use of Mixed Sampling in Modelling Realized Volatility:
The MEM–MIDAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Alessandra Amendola, Vincenzo Candila, Fabrizio Cipollini,
and Giampiero M. Gallo
Simultaneous Prediction Intervals for Forecasting EUR/USD
Exchange Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Ilaria Lucrezia Amerise and Agostino Tarsitano
An Empirical Investigation of Heavy Tails in Emerging Markets
and Robust Estimation of the Pareto Tail Index . . . . . . . . . . . . . . . . . . . . . . 21
Joseph Andria and Giacomo di Tollo
Potential of Reducing Crop Insurance Subsidy Based
on Willingness to Pay and Random Forest Analysis . . . . . . . . . . . . . . . . . . . 27
Rahma Anisa, Dian Kusumaningrum, Valantino Agus Sutomo,
and Ken Seng Tan
A Stochastic Volatility Model for Optimal Market-Making . . . . . . . . . . . . 33
Zubier Arfan and Paul Johnson
Method for Forecasting Mortality Based on Key Rates . . . . . . . . . . . . . . . . 39
David Atancd, Alejandro Balbas, and Eliseo Navarro
Resampling Methods to Assess the Forecasting Ability of Mortality
Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
David Atance, Ana Debón, and Eliseo Navarro
Portfolio Optimization with Nonlinear Loss Aversion
and Transaction Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Alessandro Avellone, Anna Maria Fiori, and Ilaria Foroni

vii
viii Contents

Monte Carlo Valuation of Future Annuity Contracts . . . . . . . . . . . . . . . . . . 57

Anna Rita Bacinello, Pietro Millossovich, and Fabio Viviano
A Risk Based Approach for the Solvency Capital Requirement
for Health Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Fabio Baione, Davide Biancalana, and Paolo De Angelis
An Application of Zero-One Inflated Beta Regression Models
for Predicting Health Insurance Reimbursement . . . . . . . . . . . . . . . . . . . . . 71
Fabio Baione, Davide Biancalana, and Paolo De Angelis
Periodic Autoregressive Models for Stochastic Seasonality . . . . . . . . . . . . . 79
Roberto Baragona, Francesco Battaglia, and Domenico Cucina
Behavioral Aspects in Portfolio Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Diana Barro, Marco Corazza, and Martina Nardon
Stochastic Dominance in the Outer Distributions of the α-Efficiency
Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Sergio Bianchi, Augusto Pianese, Massimiliano Frezza,
and Anna Maria Palazzo
Formal and Informal Microfinance in Nigeria. Which of Them
Works? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Marinella Boccia
Conditional Quantile Estimation for Linear ARCH Models
with MIDAS Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Vincenzo Candila and Lea Petrella
Modelling Topics of Car Accidents Events: A Text Mining Approach . . . 117
Gabriele Cantaluppi and Diego Zappa
A Bayesian Generalized Poisson Model for Cyber Risk Analysis . . . . . . . 123
Giulia Carallo, Roberto Casarin, and Christian P. Robert
Implementation in R and Matlab of Econometric Models Applied
to Ages After Retirement in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Patricia Carracedo and Ana Debón
Machine Learning in Nested Simulations Under Actuarial
Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Gilberto Castellani, Ugo Fiore, Zelda Marino, Luca Passalacqua,
Francesca Perla, Salvatore Scognamiglio, and Paolo Zanetti
Comparing RL Approaches for Applications to Financial Trading
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Marco Corazza, Giovanni Fasano, Riccardo Gusso, and Raffaele Pesenti
MFG-Based Trading Model with Information Costs . . . . . . . . . . . . . . . . . . 153
Marco Corazza, Rosario Maggistro, and Raffaele Pesenti
Contents ix

Trading System Mixed-Integer Optimization by PSO . . . . . . . . . . . . . . . . . 161

Marco Corazza, Francesca Parpinel, and Claudio Pizzi
A GARCH-Type Model with Cross-Sectional Volatility Clusters . . . . . . . 169
Pietro Coretto, Michele La Rocca, and Giuseppe Storti
A Lattice Approach to Evaluate Participating Policies
in a Stochastic Interest Rate Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Massimo Costabile, Ivar Massabó, Emilio Russo, and Alessandro Staino
Multidimensional Visibility for Describing the Market Dynamics
Around Brexit Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Maria Elena De Giuli, Andrea Flori, Daniela Lazzari,
and Alessandro Spelta
Risk Assessment in the Reverse Mortgage Contract . . . . . . . . . . . . . . . . . . . 189
Emilia Di Lorenzo, Gabriella Piscopo, Marilena Sibillo,
and Roberto Tizzano
Neural Networks to Determine the Relationships Between Business
Innovation and Gender Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Giacomo di Tollo, Joseph Andria, and Stoyan Tanev
Robomanagement TM : Virtualizing the Asset Management Team
Through Software Objects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
Riccardo Donati and Marco Corazza
Numerical Stability of Optimal Mean Variance Portfolios . . . . . . . . . . . . . 209
Claudia Fassino, Maria-Laura Torrente, and Pierpaolo Uberti
Pairs-Trading Strategies with Recurrent Neural Networks Market
Predictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Andrea Flori and Daniele Regoli
Automatic Balancing Mechanism and Discount Rate: Towards
an Optimal Transition to Balance Pay-As-You-Go Pension Scheme
Without Intertemporal Dictatorship? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Frédéric Gannon, Florence Legros, and Vincent Touzé
The Importance of Reporting a Pension System’s Income
Statement and Budgeted Variances in a Fair and Sustainable
Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Anne Marie Garvey, Manuel Ventura-Marco, and Carlos Vidal-Meliá
Improved Precision in Calibrating CreditRisk+ Model for Credit
Insurance Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
J. Giacomelli and L. Passalacqua
A Model-Free Screening Selection Approach by Local Derivative
Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Francesco Giordano, Sara Milito, and Maria Lucia Parrella
x Contents

Markov Switching Predictors Under Asymmetric Loss Functions . . . . . . 251

Francesco Giordano and Marcella Niglio
Screening Covariates in Presence of Unbalanced Binary Dependent
Variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Francesco Giordano, Marcella Niglio, and Marialuisa Restaino
Health and Wellbeing Profiles Across Europe . . . . . . . . . . . . . . . . . . . . . . . . 265
Aurea Grané, Irene Albarrán, and Roger Lumley
On Modelling of Crude Oil Futures in a Bivariate State-Space
Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Peilun He, Karol Binkowski, Nino Kordzakhia, and Pavel Shevchenko
A General Comovement Measure for Time Series . . . . . . . . . . . . . . . . . . . . 279
Agnieszka Jach
Alternative Area Yield Index Based Crop Insurance Policies
in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Dian Kusumaningrum, Rahma Anisa, Valantino Agus Sutomo,
and Ken Seng Tan
Clustering Time Series by Nonlinear Dependence . . . . . . . . . . . . . . . . . . . . . 291
Michele La Rocca and Luca Vitale
Quantile Regression Neural Network for Quantile Claim Amount
Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Alessandro G. Laporta, Susanna Levantesi, and Lea Petrella
Modelling Health Transitions in Italy: A Generalized Linear
Model with Disability Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Susanna Levantesi and Massimiliano Menzietti
Mid-Year Estimators in Life Table Construction . . . . . . . . . . . . . . . . . . . . . . 315
Josep Lledó, Jose M. Pavía, and Natalia Salazar
Representing Koziol’s Kurtoses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
Nicola Loperfido
Optimal Portfolio for Basic DAGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
Diego Attilio Mancuso and Diego Zappa
The Neural Network Lee–Carter Model with Parameter
Uncertainty: The Case of Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Mario Marino and Susanna Levantesi
Pricing of Futures with a CARMA(p, q) Model Driven by a Time
Changed Brownian Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
Lorenzo Mercuri, Andrea Perchiazzo, and Edit Rroji
Contents xi

Forecasting Multiple VaR and ES Using a Dynamic Joint Quantile

Regression with an Application to Portfolio Optimization . . . . . . . . . . . . . 349
Merlo Luca, Petrella Lea, and Raponi Valentina
Financial Market Crash Prediction Through Analysis of Stable
and Pareto Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
Jesus-Enrique Molina, Andres Mora-Valencia, and Javier Perote
Precision Matrix Estimation for the Global Minimum Variance
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
Marco Neffelli, Maria Elena De Giuli, and Marina Resta
Deconstructing Systemic Risk: A Reverse Stress Testing Approach . . . . . 369
Javier Ojea-Ferreiro
Stochastic Dominance and Portfolio Performance Under Heuristic
Optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
Adeola Oyenubi
Big-Data for High-Frequency Volatility Analysis
with Time-Deformed Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
António A. F. Santos
Parametric Bootstrap Estimation of Standard Errors in Survival
Models When Covariates are Missing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Francesco Ungolo, Torsten Kleinow, and Angus S. Macdonald
The Role of Correlation in Systemic Risk: Mechanisms, Effects,
and Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Stefano Zedda, Michele Patanè, and Luana Miggiano
About the Editors

Marco Corazza, Ph.D. in “Mathematics for the Analysis of Financial Markets”, is an

associate professor at the Department of Economics of the Ca’ Foscari University of
Venice. Among his main research interests are static and dynamic portfolio manage-
ment theories; trading system models; machine learning applications in finance;
bioinspired metaheuristics for optimization; multicriteria methods for economic deci-
sion support; nonstandard probability distributions in finance; and port scheduling
models and algorithms. He has participated and participates in several research
projects, both at the national and international levels. He is an author/coauthor of
approximately one hundred thirty scientific publications; some of them have received
national and international awards. He is also editor-in-chief of the international scien-
tific journal “Mathematical Methods in Economics and Finance”, editor of Springer
books, and has been and is member of the scientific committees of several confer-
ences and of some private companies. He combined academic activity with consulting
services.

Manfred Gilli is Professor emeritus at the Geneva School of Economics and Manage-
ment at the University of Geneva, where he has taught numerical methods in
economics and finance. He is also a faculty member of the Swiss Finance Institute,
a member of the Advisory Board of Computational Statistics and Data Analysis and
a member of the editorial board of Computational Economics. He formerly served
as president of the Society for Computational Economics.

Cira Perna is a full professor of statistics at the Department of Economics and

Statistics of the University of Salerno (Italy). Since 2018, she has been elected a
member of the Steering Committee of the Italian Statistical Society; since 2019, she
has been a member of the Board of Directors of the University of Salerno; since
the first edition of the Conference, in 2004, she has been a chair of the international
conference MAF and guest editor of the associated international journals; and since
2006, she has been an Editor of the Springer books MAF. Her research work mainly
focuses on nonlinear time series, artificial neural network models and resampling
techniques. On these topics, she has published numerous papers in national and

xiii
xiv About the Editors

international journals. She has participated in several research projects, both at the
national and international levels, and she has been a member of several scientific
committees of national and international conferences.

Claudio Pizzi is an associate professor at the Department of Economics of the Ca’

Foscari University of Venice, where he teaches statistical methods for financial and
monetary markets and business statistics. His research is focused mainly on statistical
analysis of financial time series, linear and nonlinear models for time series, technical
analysis, trading system models, bioinspired metaheuristics for optimization and
systemic risk. He has participated in both national and international research projects.
He is a member of the editorial board of “Statistical Method and Applications”.

Marilena Sibillo is a full professor of Mathematical Methods for Economics,

Finance and Actuarial Sciences at the University of Salerno and is currently a contract
professor of Financial Mathematics in the 2020/2021 academic year at Luiss Univer-
sity in Rome. In 2012, she was awarded a Highly Commended Award Winner at the
Literati Network Awards for Excellence, and since 2013, she has been a Paul Harris
Fellow. She had national and international awards related to teaching. Since 2006,
she has been an editor of the Springer books MAF and Finance and a guest editor
of international journals. Since 2004, she has been chair of the international confer-
ence MAF, and since 2016, she has been chair of the UNISActuarial School. She
is an author of more than 100 papers mostly published in international journals and
books. Her scientific activity mainly deals with risk theory, analysis and control of the
interactions between financial and demographic risks, variable annuities, stochastic
mortality and innovative pension contracts.
A Comparison Among Alternative
Parameters Estimators in the Vasicek
Process: A Small Sample Analysis

Giuseppina Albano, Michele La Rocca, and Cira Perna

Abstract In this paper we perform a Monte Carlo simulation study to compare the
performance of several parameters estimators in the Vasicek process when small
sample sizes are available. The aim is to give useful insights to establish which
estimator is better when only short time series, with a length between 20 and 200,
are observed.

Keywords Small samples · Martingale estimating functions · Generalized method

of moments

1 Introduction

Vasicek is a well known homogeneous diffusion process, often used for the evaluation
of life insurance contracts and for modelling short-term interest rates.
In such contexts, the data are usually yearly observed and, as a consequence,
only small samples are available in the estimation procedures. Therefore, the asymp-
totic conditions, which ensure the good statistical properties of many parameters
estimators, are not appropriate.
The aim of this paper is to compare the performances of some alternative esti-
mation procedures in the case of short time series. In particular, we consider three
alternative estimators for the parameters: the classical Maximum Likelihood Esti-
mator (MLE), the Generalized method of Moments (GMM), the linear martingale
estimating function.

G. Albano (B)
Dip.di Studi Politici e Sociali, Università di Salerno, Salerno, Italy
e-mail: [email protected]
M. L. Rocca · C. Perna
Dip.di Scienze Economiche e Statistiche, Università di Salerno, Salerno, Italy
e-mail: [email protected]
C. Perna
e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 1

M. Corazza et al. (eds.), Mathematical and Statistical Methods for Actuarial
Sciences and Finance, https://doi.org/10.1007/978-3-030-78965-7_1
2 G. Albano et al.

In this context, a small Monte Carlo experiment is implemented in order to inves-

tigate which properties of parameters estimator still remain valid when time series,
with a length n between 20 and 200, are available.
The paper is organized as follows. In Sect. 2 the alternative estimators are briefly
reviewed. In Sect. 3 the results of the implemented simulation experiment are reported
along with some concluding remarks.

2 Some Relevant Parameters Estimators

Let X obs = (X 1 , . . . , X n ) be equally-spaced observations from a Vasicek process

{X (t), t ∈ [0, +∞]} described by the following stochastic differential equation
(SDE):
d X t = k(α − X t )dt + σ d Bt , (1)

where Bt is a standard Brownian motion. The unknown parameters vector θ =

(α, k, σ ) can be estimated by means of several approaches (see, for example, [8]).
In the following we briefly overview the most used in the literature.

2.1 Maximum Likelihood Estimator

Since, for the Vasicek process, the conditional distribution is Normal, the likelihood
function of θ = (k, α, σ ) is
 
√
L(θ ) = φ σ −1 2k(X 0 − α)


n   
−1 −2kδ −1 −kδ −kδ
× φ σ 2k(1 − e ) {X t − X t−1 e − α(1 − e )} .
t=1

The MLE estimator of θ can be explicitly derived (see, [1, 2, 9] for details).

2.2 Generalized Method of Moments

The generalized method of moments is based on the matching of theoretical moments

and sample moments. Let u i = u(X i ; θ ) ∈ R r , r ≥ 3 (the number of unknown
parameters), such that the orthogonality condition holds, i.e. if θ0 is the true value of
the parameter θ :
E[u(X i ; θ )] = 0 only if θ = θ0 . (2)
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