Which eligible assets are compatible with comonotonic capital requirements?

Pablo Koch-Medina, Cosimo Munari and Gregor Svindland

Insurance: Mathematics and Economics, 2018, vol. 81, issue C, 18-26

Abstract: Within the context of capital adequacy, we study comonotonicity of risk measures in terms of the primitives of the theory: acceptance sets and eligible, or reference, assets. We show that comonotonicity cannot be characterized by the properties of the acceptance set alone and heavily depends on the choice of the eligible asset. In fact, in many important cases, comonotonicity is only compatible with risk-free eligible assets. The incompatibility with risky eligible assets is systematic whenever the acceptability criterion is based on Value-at-Risk or any convex distortion risk measure such as Expected Shortfall. These findings qualify and arguably call for a critical appraisal of the meaning and the role of comonotonicity within a capital adequacy context.

Keywords: Comonotonicity; Risk measures; Acceptance sets; Eligible assets; Value at Risk; Expected Shortfall (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:81:y:2018:i:c:p:18-26

DOI: 10.1016/j.insmatheco.2018.04.003

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