On the Use of Copulas for Calculating the Present Value of a General Cash Flow
In a paper of 2000, Kaas, Dhaene and Goovaerts investigate the present value of a rather general cash flow as a special case of sums of dependent risks. Making use of comonotonic risks, they derive upper and lower bounds for the distribution of the present value, in the sense of convex ordering. These bounds are very close to the real distribution in case all payments have the same sign; however, if there are both positive and negative payments, the upper bounds perform rather badly. In the present contribution we show what happens when solving this problem by means of copulas. The idea consists of splitting up the total present value in the difference of two present values with positive payments. Making use of a copula as an approximation for the joint distribution of the two sums, an approximation for the distribution of the original present value can be derived.
Volume (Year): L (2005)
Issue (Month): 1 ()
|Contact details of provider:|| Postal: Naamsestraat 69, 3000 Leuven|
Web page: http://feb.kuleuven.be/rebel
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ete:revbec:20050107. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (library EBIB)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.