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Modeling and Management of Nonlinear Dependencies - Copulas in Dynamic Financial Analysis
Company: University of St. Gallen
Year Of Publication: 2007
Month Of Publication: January
Pages: 32
Download Count: 385
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Comment Num: 0
Language: EN
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Who Can Read: Free
Date: 5-12-2007
Publisher: Administrator
Summary
The aim of this paper is to study the influence of nonlinear dependencies on a nonlifeinsurer’s risk and return profile. To achieve this, we integrate several copulamodels in a dynamic financial analysis (DFA) framework and conduct numericaltests within a simulation study. We also test several management strategies in responseto adverse outcomes generated by nonlinear dependencies. We find thatnonlinear dependencies have a crucial influence on the insurer’s risk profile thatcan hardly be affected by the analyzed management strategies. Depending on thecopula concept employed, we find large differences in risk assessment for the ruinprobability and for the expected policyholder deficit. This has important implicationsfor regulators and rating agencies that use these risk measures as a foundation for capital standards and rating
Author(s)
Eling, Martin Sign in to follow this author
Toplek, Denis Sign in to follow this author
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