Solvency Capital estimation and Risk Measures

Antoni Ferri (), Montserrat Guillen and Lluís Bermúdez ()
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Antoni Ferri: Departament d'Econometria, Estadística i Economia Espanyola. RISC-IREA. University of Barcelona. Spain
Lluís Bermúdez: Departament de Matemàtica Financera i Actuarial. RISC-IREA. University of Barcelona. Spain

No XREAP2012-02, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: This paper examines why a financial entity’s solvency capital estimation might be underestimated if the total amount required is obtained directly from a risk measurement. Using Monte Carlo simulation we show that, in some instances, a common risk measure such as Value-at-Risk is not subadditive when certain dependence structures are considered. Higher risk evaluations are obtained for independence between random variables than those obtained in the case of comonotonicity. The paper stresses, therefore, the relationship between dependence structures and capital estimation.

Keywords: Solvency II; Solvency Capital Requirement; Value-at-Risk; Tail Value-at-Risk; Monte Carlo; Copulas (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-01, Revised 2012-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.xreap.cat/RePEc/xrp/pdf/XREAP2012-02.pdf First version, 2012 (application/pdf)
http://www.xreap.cat/RePEc/xrp/pdf/XREAP2012-02.pdf Revised version, 2012 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:xrp:wpaper:xreap2012-02

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