Copula based hierarchical risk aggregation through sample reordering

Philipp Arbenz, Christoph Hummel and Georg Mainik

Insurance: Mathematics and Economics, 2012, vol. 51, issue 1, 122-133

Abstract: For high-dimensional risk aggregation purposes, most popular copula classes are too restrictive in terms of attainable dependence structures. These limitations aggravate with increasing dimension. We study a hierarchical risk aggregation method which is flexible in high dimensions. With this method it suffices to specify a low dimensional copula for each aggregation step in the hierarchy. Copulas and margins of arbitrary kind can be combined. We give an algorithm for numerical approximation which introduces dependence between originally independent marginal samples through reordering.

Keywords: IM12; IM22; IM43; IE43; IE46; Hierarchical risk aggregation; Copulas; High-dimensional dependence; Iman–Conover method (search for similar items in EconPapers)
JEL-codes: C51 C58 C63 G22 G32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:1:p:122-133

DOI: 10.1016/j.insmatheco.2012.03.009

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