2022-05-01
On capital allocation for a risk measure derived from ruin theory
Publication
Publication
Insurance: Mathematics and Economics , Volume 104 p. 76- 98
This paper addresses allocation methodologies for a risk measure inherited from ruin theory. Specifically, we consider a dynamic value-at-risk (VaR) measure defined as the smallest initial capital needed to ensure that the ultimate ruin probability is less than a given threshold. We introduce an intuitively appealing, novel allocation method, with a focus on its application to capital reserves which are determined through the dynamic VaR measure. Various desirable properties of the presented approach are derived including a limit result when considering a large time horizon and the comparison with the frequently used gradient allocation method. In passing, we introduce a second allocation method and discuss its relation to the other allocation approaches. A number of examples illustrate the applicability and performance of the allocation approaches.
| Additional Metadata | |
|---|---|
| , , , , | |
| Rabobank, Utrecht, the Netherlands | |
| doi.org/10.1016/j.insmatheco.2022.02.001 | |
| Insurance: Mathematics and Economics | |
| Organisation | Centrum Wiskunde & Informatica, Amsterdam (CWI), The Netherlands |
|
Delsing, G. A., Mandjes, M., Spreij, P., & Winands, E. M. M. (2022). On capital allocation for a risk measure derived from ruin theory. Insurance: Mathematics and Economics, 104, 76–98. doi:10.1016/j.insmatheco.2022.02.001 |
|
