Related papers: A risk management approach to capital allocation
This paper considers optimal control problem of a large insurance company under a fixed insolvency probability. The company controls proportional reinsurance rate, dividend pay-outs and investing process to maximize the expected present…
Portfolio management is an essential component of investment strategy that aims to maximize returns while minimizing risk. This paper explores several portfolio management strategies, including asset allocation, diversification, active…
We propose a new ensemble prediction method, Random Subset Averaging (RSA), tailored for settings with many covariates, particularly in the presence of strong correlations. RSA constructs candidate models via binomial random subset strategy…
The ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of…
Asset allocation is an investment strategy that aims to balance risk and reward by constantly redistributing the portfolio's assets according to certain goals, risk tolerance, and investment horizon. Unfortunately, there is no simple…
Recently, Basel Committee for Banking Supervision proposed to replace all approaches, including Advanced Measurement Approach (AMA), for operational risk capital with a simple formula referred to as the Standardised Measurement Approach…
Risk control and optimal diversification constitute a major focus in the finance and insurance industries as well as, more or less consciously, in our everyday life. We present a discussion of the characterization of risks and of the…
Understanding variable dependence, particularly eliciting their statistical properties given a set of covariates, provides the mathematical foundation in practical operations management such as risk analysis and decision-making given…
Within the Solvency II framework the insurance industry requires a realistic modelling of the risk processes relevant for its business. Every insurance company should be capable of running a holistic risk management process to meet this…
This paper investigates market-consistent valuation of insurance liabilities in the context of, for instance, Solvency II and to some extent IFRS 4. We propose an explicit and consistent framework for the valuation of insurance liabilities…
We propose a definition of diversification as a binary relationship between financial portfolios. According to it, a convex linear combination of several risk positions with some weights is considered to be less risky than the probabilistic…
We propose a stochastic model allowing property and casualty insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. Our model includes many desirable…
Dual risk models are popular for modeling a venture capital or high tech company, for which the running cost is deterministic and the profits arrive stochastically over time. Most of the existing literature on dual risk models concentrated…
We develop an agent-based simulation of the catastrophe insurance and reinsurance industry and use it to study the problem of risk model homogeneity. The model simulates the balance sheets of insurance firms, who collect premiums from…
In this paper, we deal with risk evaluation and risk-averse optimization of complex distributed systems with general risk functionals. We postulate a novel set of axioms for the functionals evaluating the total risk of the system. We derive…
We present a general approach to the pricing of products in finance and insurance in the multi-period setting. It is a combination of the utility indifference pricing and optimal intertemporal risk allocation. We give a characterization of…
We introduce a new approach for prudent risk evaluation based on stochastic dominance, which will be called the model aggregation (MA) approach. In contrast to the classic worst-case risk (WR) approach, the MA approach produces not only a…
Facing the FRTB, banks need to allocate their capital to each business units or risk positions to evaluate the capital efficiency of their strategies. This paper proposes two computationally efficient allocation methods which are weighted…
The paper provides a framework for the assessment and optimization of the total risk of complex distributed systems. The framework takes into account the risk of each agent, which may arise from heterogeneous sources, as well as the risk…
We investigate a multi-factor extension of the asymptotic single risk factor (ASRF) model that underlies the capital charges of the "Basel II Accord". In this extended model, it is still possible to derive closed-form solutions for the risk…