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Solvency Capital estimation and Risk Measures

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Author Info

  • Antoni Ferri

    ()
    (Departament d'Econometria, Estadística i Economia Espanyola. RISC-IREA. University of Barcelona. Spain)

  • Montserrat Guillén

    ()
    (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)

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.

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File URL: http://www.pcb.ub.edu/xreap/aplicacio/fitxers/XREAP2012-02.pdf
File Function: First version, 2012
Download Restriction: no

File URL: http://www.pcb.ub.edu/xreap/aplicacio/fitxers/XREAP2012-02.pdf
File Function: Revised version, 2012
Download Restriction: no

Bibliographic Info

Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2012-02.

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Length: 26 pages
Date of creation: Jan 2012
Date of revision: Jan 2012
Handle: RePEc:xrp:wpaper:xreap2012-02

Contact details of provider:
Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
Phone: +34+934039653
Email:
Web page: http://www.pcb.ub.edu/xreap
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Related research

Keywords: Solvency II; Solvency Capital Requirement; Value-at-Risk; Tail Value-at-Risk; Monte Carlo; Copulas;

References

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  1. Xavier Fageda & Jordi Perdiguero, 2011. "An empirical analysis of a merger between a network and low-cost airlines," Working Papers XREAP2011-01, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
  2. Marta Arespa, 2011. "Macroeconomics of extensive margins: a simple model," Working Papers XREAP2011-19, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2011.
  3. Xosé-Luís Varela-Irimia, 2011. "Age effects, unobserved characteristics and hedonic price indexes: The Spanish car market in the 1990?s," Working Papers XREAP2011-11, Xarxa de Referència en Economia Aplicada (XREAP), revised Aug 2011.
  4. Daniel Albalate & Germà Bel, 2008. "Tourism and urban transport: Holding demand pressure under supply constraints," Working Papers XREAP2008-14, Xarxa de Referència en Economia Aplicada (XREAP), revised Dec 2008.
  5. Laia Castany & Enrique Lopez-Bazo & Rosina Moreno, 2007. "Decomposing differences in total factor productivity across firm size," IREA Working Papers 200705, University of Barcelona, Research Institute of Applied Economics, revised Mar 2007.
  6. Juan Luís Jiménez & Jordi Perdiguero, 2009. "(No)competition in the Spanish retailing gasoline market: a variance filter approach," Working Papers XREAP2009-05, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2009.
  7. Marta Arespa, 2011. "A New Open Economy Macroeconomic Model with Endogenous Portfolio Diversifi cation and Firms Entry," Working Papers XREAP2011-15, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2011.
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