Evaluating Risk Measures and Capital Allocations Based on Multi-Losses Driven by a Heavy-Tailed Background Risk: The Multivariate Pareto-II Model

Alexandru V. Asimit, Raluca Vernic and Riċardas Zitikis
Additional contact information
Alexandru V. Asimit: Cass Business School, City University, London EC1Y 8TZ, UK
Raluca Vernic: Faculty of Mathematics and Computer Science, Ovidius University of Constanta, 124 Mamaia Blvd, 900527 Constanta, and Institute of Mathematical Statistics and Applied Mathematics, 13 Septembrie 13, 050711 Bucharest, Romania
Riċardas Zitikis: Department of Statistical and Actuarial Sciences, University of Western Ontario, London, OntarioN6A 5B7, Canada

Risks, 2013, vol. 1, issue 1, 1-20

Abstract: Evaluating risk measures, premiums, and capital allocation based on dependent multi-losses is a notoriously difficult task. In this paper, we demonstrate how this can be successfully accomplished when losses follow the multivariate Pareto distribution of the second kind, which is an attractive model for multi-losses whose dependence and tail heaviness are influenced by a heavy-tailed background risk. A particular attention is given to the distortion and weighted risk measures and allocations, as well as their special cases such as the conditional layer expectation, tail value at risk, and the truncated tail value at risk. We derive formulas that are either of closed form or follow well-defined recursive procedures. In either case, their computational use is straightforward.

Keywords: distortion risk measure; weighted premium; weighted allocation; tail value at risk; conditional tail expectation; multivariate Pareto distribution (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://www.mdpi.com/2227-9091/1/1/14/pdf (application/pdf)
https://www.mdpi.com/2227-9091/1/1/14/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:1:y:2013:i:1:p:14-33:d:23978

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().