On the Capital Allocation Problem for a New Coherent Risk Measure in Collective Risk Theory

Hirbod Assa, Manuel Morales and Hassan Omidi Firouzi
Additional contact information
Hirbod Assa: Institute for Financial and Actuarial Mathematics, University of Liverpool, Liverpool L69 7ZX, UK
Manuel Morales: Department of Mathematics and Statistics, University of Montreal, CP. 6128 Succ. Centre-Ville, Montreal, QC H3C 3J7, Canada
Hassan Omidi Firouzi: Senior Enterprise Model Risk Analyst, Royal Bank of Canada, 200 Bay St, Toronto, ON M5J 2J1, Canada

Risks, 2016, vol. 4, issue 3, 1-20

Abstract: In this paper we introduce a new coherent cumulative risk measure on a subclass in the space of càdlàg processes. This new coherent risk measure turns out to be tractable enough within a class of models where the aggregate claims is driven by a spectrally positive Lévy process. We focus our motivation and discussion on the problem of capital allocation. Indeed, this risk measure is well-suited to address the problem of capital allocation in an insurance context. We show that the capital allocation problem for this risk measure has a unique solution determined by the Euler allocation method. Some examples and connections with existing results as well as practical implications are also discussed.

Keywords: capital allocation; Euler allocation method; coherent risk measures; Lévy insurance processes; risk measures on the space of stochastic processes (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.mdpi.com/2227-9091/4/3/30/pdf (application/pdf)
https://www.mdpi.com/2227-9091/4/3/30/ (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:4:y:2016:i:3:p:30-:d:76031

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 ().