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Underestimation of the Solvency Capital and Risk Measurements
Year Of Publication: 2012
Month Of Publication: January
Pages: 10
Download Count: 4
View Count: 1082
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-7-2012
Publisher: Administrator
Summary
This paper examines why a financial entity’s solvency capital estimation might be underestimated if the total amount required is obtained directly from a risk measurement. Using Monte Carlo simulation we show that, in some instances, a common risk measure such as Value-at-Risk is not subadditive when certain dependence structures are considered. Higher risk evaluations are obtained for independence between random variables than those obtained in the case of comonotonicity. The paper stresses, therefore, the relationship between dependence structures and capital estimation.
Author(s)
Ferri, Antoni Sign in to follow this author
Bermudez, Lluís Sign in to follow this author
Guillen, Monserrat Sign in to follow this author
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