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Estimating the Risk-Adjusted Capital is an Affair in the Tails
Year Of Publication: 2011
Month Of Publication: August
Pages: 37
Download Count: 6
View Count: 1536
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 8-24-2011
Publisher: Administrator
Summary
(Re)insurance companies need to model their liabilities’ portfolio to compute the risk-adjusted capital (RAC) needed to support their business. The RAC depends on both the distribution and the dependence functions that are applied among the risks in a portfolio. We investigate the impact of those assumptions on an important concept for (re)insurance industries: the diversification gain. Several copulas are considered in order to focus on the role of dependencies. To be consistent with the frameworks of both Solvency II and the Swiss Solvency Test, we deal with two risk measures: the Value-at-Risk and the expected shortfall. We highlight the behavior of different capital allocation principles according to the dependence assumptions and the choice of the risk measure.
Author(s)
Canestraro, Davide Sign in to follow this author
Dacorogna, Michel Sign in to follow this author
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