Dependence modeling in non-life insurance using the Bernstein copula

Dorothea Diers, Martin Eling and Sebastian D. Marek

Insurance: Mathematics and Economics, 2012, vol. 50, issue 3, 430-436

Abstract: This paper illustrates the modeling of dependence structures of non-life insurance risks using the Bernstein copula. We conduct a goodness-of-fit analysis and compare the Bernstein copula with other widely used copulas. Then, we illustrate the use of the Bernstein copula in a value-at-risk and tail-value-at-risk simulation study. For both analyses we utilize German claims data on storm, flood, and water damage insurance for calibration. Our results highlight the advantages of the Bernstein copula, including its flexibility in mapping inhomogeneous dependence structures and its easy use in a simulation context due to its representation as mixture of independent Beta densities. Practitioners and regulators working toward appropriate modeling of dependences in a risk management and solvency context can benefit from our results.

Keywords: Non-life insurance; Copulas; Bernstein copula; Goodness-of-fit; Simulation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:50:y:2012:i:3:p:430-436

DOI: 10.1016/j.insmatheco.2012.02.007

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