 Iterated VaR or CTE measures: A false good idea?Pierre Devolder and Adrien Lebègue Scandinavian Actuarial Journal, 2017, vol. 2017, issue 4, 287-318 Abstract: The purpose of this paper is twofold. Firstly, we consider different risk measures in order to determine the solvency capital requirement of a pension fund. Secondly, we illustrate the impact of the time horizon of long-term guarantee products on these capital. We consider a financial market modelled by a common Black–Scholes–Merton model. We neglect the mortality and underwriting risks by assuming that the pension fund is fully hedged against these risks, which allows us to keep understandable and tractable formulæ (the longevity risk will be a part of future researches). A portfolio is built in this market according to different strategies and the pension fund offers a fixed guaranteed rate on a certain time horizon. We begin with well-known static risk measures (value at risk and conditional tail expectation measures) and then we consider their natural dynamic generalization. In order to be time consistent, we consider their iterated versions by a backward iterations scheme. Within the dynamic setting, we show that solvency capital can be expensive and that attention must be paid to the safety level considered. Date: 2017 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:sactxx:v:2017:y:2017:i:4:p:287-318 Ordering information: This journal article can be ordered from DOI: 10.1080/03461238.2015.1126343 Access Statistics for this article Scandinavian Actuarial Journal is currently edited by Boualem Djehiche More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals |
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