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Multiple risk factor dependence structures: Distributional properties

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  • Jianxi Su
  • Edward Furman

Abstract

We introduce a class of dependence structures, that we call the Multiple Risk Factor (MRF) dependence structures. On the one hand, the new constructions extend the popular CreditRisk+ approach, and as such they formally describe default risk portfolios exposed to an arbitrary number of fatal risk factors with conditionally exponential and dependent hitting (or occurrence) times. On the other hand, the MRF structures can be seen as an encompassing family of multivariate probability distributions with univariate margins distributed Pareto of the 2nd kind, and in this role they can be used to model insurance risk portfolios of dependent and heavy tailed risk components.

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  • Jianxi Su & Edward Furman, 2016. "Multiple risk factor dependence structures: Distributional properties," Papers 1607.04739, arXiv.org.
    • Handle: RePEc:arx:papers:1607.04739
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    References listed on IDEAS

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    11. Furman, Edward & Landsman, Zinoviy, 2005. "Risk capital decomposition for a multivariate dependent gamma portfolio," Insurance: Mathematics and Economics, Elsevier, vol. 37(3), pages 635-649, December.
    12. Jianxi Su & Edward Furman, 2016. "A form of multivariate Pareto distribution with applications to financial risk measurement," Papers 1607.04737, arXiv.org.
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    Cited by:

    1. Jevtić, P. & Hurd, T.R., 2017. "The joint mortality of couples in continuous time," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 90-97.
    2. Jianxi Su & Edward Furman, 2016. "Multiple risk factor dependence structures: Copulas and related properties," Papers 1610.02126, arXiv.org.
    3. Su, Jianxi & Furman, Edward, 2017. "Multiple risk factor dependence structures: Copulas and related properties," Insurance: Mathematics and Economics, Elsevier, vol. 74(C), pages 109-121.

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