Dealing with Dependent Risks

Claudia Klüppelberg and Robert Stelzer ()
Additional contact information
Claudia Klüppelberg: Technische Universität München, Chair of Mathematical Statistics, Center for Mathematical Sciences
Robert Stelzer: Ulm University, Institute of Mathematical Finance, Faculty of Mathematics and Economics

Chapter Chapter 9 in Risk - A Multidisciplinary Introduction, 2014, pp 241-277 from Springer

Abstract: Abstract In most real life situations we are confronted not only with one single source of risk or one single risk, but with several sources of risk or combinations of risks. An important question is whether individual risks influence each other or not. This may involve the time of their occurrence and/or their severity. In other words, we need to understand how to model and describe the dependence structure of risks. Clearly, if risks influence each other in such a way that they tend to occur together and increase the severity of the overall risk, then the situation may be much more dangerous than otherwise. We illustrate this with a concrete example. Consider a building which could be hit by an earthquake and a flood. If the building is situated on the Japanese coast, an earthquake may damage the building and cause a tsunami, which in turn floods the building. Hence, it is quite likely that by these two combined sources of risk a particularly disastrous event occurs. In other words, there is a strong positive dependence between these two risks (high damage from an earthquake will often come along with high damage from a flood). This does not mean that they always occur together, since an earthquake does not necessarily cause a tsunami, and there may be a flood caused only by heavy rain.

Keywords: Copula; Correlation; Extreme dependence; Rank correlation; Risk measure; 60E99; 62E10; 62H20; 60-01; 62-01 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:sprchp:978-3-319-04486-6_9

Ordering information: This item can be ordered from
http://www.springer.com/9783319044866

DOI: 10.1007/978-3-319-04486-6_9

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().