Insurance solvency under parameter uncertainty

Financial institutions such as insurance companies or banks are regulated according to a Value-at-Risk principle. This means that they have to hold enough capital, such that their probability of becoming insolvent over a fixed time horizon (e.g. 1 year) is very low (e.g. at most 0.5%). Calculation of the required capital according to this principle stumbles on the quite fundamental difficulty of estimating the probability of very extreme scenarios based on limited data sets.

Updated: 22/09/2011
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Views: 8,274

Stochastic claims reserving in general insurance

Claims reserves are held by insurance companies so that they have sufficient funds to pay claims when they are submitted by policyholders. In general insurance, insurance policies usually last for a year; the policyholder pays an upfront premium and then expects any claims to be met - no matter when they are made. The problem for insurers is that there is often a delay before the claims are arrive, and then a further delay before they are paid.

Updated: 24/01/2013
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Views: 14,091

Insurance, systemic risk and the financial crisis

Author(s):

Faisal Baluch

 et al.

In this paper we assess the impact of the financial crisis on insurance markets and the role of the insurance industry in the crisis itself.

Updated: 24/10/2011
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Views: 8,287

To split or not to split: capital allocation with convex risk measures

Convex risk measures were introduced by Deprez and Gerber (1985). Here the problem of allocating risk capital to subportfolios is addressed, when aggregate capital is calculated by a convex risk measure. The Aumann-Shapley value is proposed as an appropriate allocation mechanism. Distortion-exponential measures are discussed extensively and explicit capital allocation formulas are obtained for the case that the risk measure belongs to this family. Finally the implications of capital allocation with a convex risk measure for the stability of portfolios are discussed.

Updated: 22/09/2011
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Views: 3,834

Risk measures and theories of choice

We discuss classes of risk measures in terms both of their axiomatic definitions and of the economic theories of choice that they can be derived from. More specifically, expected utility theory gives rise to the exponential premium principle, proposed by Gerber (1974), Dhaene et al. (2003), whereas Yaari's (1987) dual theory of risk can be viewed as the source of the distortion premium principle (Denneberg (1990), Wang (1996).

Updated: 22/09/2011
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Views: 3,771

Optimal capital allocation principles

This paper develops a unifying framework for allocating the aggregate capital of a financial firm to its business units.

Updated: 03/11/2011
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Views: 3,244

Froot and Stein revisited once again

Author(s):

Jens Nielsen

 et al.

In this paper we show that the economic intuition behind the paper of Froot and Stein (1998) is correct and that their result can be obtained when the market is reformulated in a discrete time setting.

Updated: 22/09/2011
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Views: 4,378

A mixing model for operational risk

Author(s):

Jens Nielsen

 et al.

External data can often be useful in improving estimation of operational risk loss distributions. This paper develops a systematic approach that incorporates external information into internal loss distribution modelling.

Updated: 22/09/2011
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Views: 3,968

Combining underreported internal and external data for operational risk measurement

Author(s):

Jens Nielsen

 et al.

This paper proposes a model for operational losses that improves the internal loss distribution modelling by combining internal and external operational risk data. It also considers the possibility that internal and external data have been collected with a different truncation threshold.

Updated: 22/09/2011
Comments:
Views: 4,368