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Can a Coherent Risk Measure Be Too Subadditive?
Year Of Publication: 2005
Month Of Publication: December
Pages: 26
Download Count: 920
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 1-20-2005
Publisher: Administrator
Summary
We consider the problem of determining appropriate solvency capital requirements in an insurance or financial environment. We demonstrate that the property of subadditivity that is often imposed on risk measures can lead to the undesirable situation where the expected shortfall increases by a merger. We propose to replace the subadditivity property by a ’regulator’s condition’. We find that for an explicitly specified confidence level, the Value-at-Risk coincides with the regulator’s desires and is the ’most efficient’ capital requirement in the sense that it minimizes some reasonable cost function. Within the framework of the so-called coherent risk measures, we find that, again for an explicitly specified confidence level, the Tail-Value-at-Risk is the optimal capital requirement, satisfying the regulator’s con
Author(s)
Dhaene, Jan L. M. Sign in to follow this author
Laeven, Roger J. A. Sign in to follow this author
Vanduffel, Steven Sign in to follow this author
Darkiewicz, Grzegorz Sign in to follow this author
Goovaerts, Marc Sign in to follow this author
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