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Model-based Measurement of Latent Risk in Time Series with Applications

Author

Listed:
  • Frits Bijleveld

    (SWOV Institute for Road Safety Research, Netherlands)

  • Jacques Commandeur

    (SWOV Institute for Road Safety Research, Netherlands)

  • Phillip Gould

    (Monash University, Melbourne)

  • Siem Jan Koopman

    (Vrije Universiteit Amsterdam)

Abstract

This discussion paper resulted in an article in the Journal of the Royal Statistical Society Series A (2008). Vol. 171, issue 1, pages 265-277. Risk is at the center of many policy decisions in companies, governments and other institutions. The risk of road fatalities concerns local governments in planning counter- measures, the risk and severity of counterparty default concerns bank risk managers on a daily basis and the risk of infection has actuarial and epidemiological consequences. However, risk can not be observed directly and it usually varies over time. Measuring risk is therefore an important exercise. In this paper we introduce a general multivariate framework for the time series analysis of risk that is modelled as a latent process. The latent risk time series model extends existing approaches by the simultaneous modelling of (i) the exposure to an event, (ii) the risk of that event occurring and (iii) the severity of the event. First, we discuss existing time series approaches for the analysis of risk which have been applied to road safety, actuarial and epidemiological problems. Seco! nd, we present a general model for the analysis of risk and discuss its statistical treatment based on linear state space methods. Third, we apply the methodology to time series of insurance claims, credit card purchases and road safety. It is shown that the general methodology can be effectively used in the assessment of risk.

Suggested Citation

  • Frits Bijleveld & Jacques Commandeur & Phillip Gould & Siem Jan Koopman, 2005. "Model-based Measurement of Latent Risk in Time Series with Applications," Tinbergen Institute Discussion Papers 05-118/4, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20050118
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    References listed on IDEAS

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    2. Dadashova, Bahar & Ramírez Arenas, Blanca & McWilliams Mira, José & Izquierdo Aparicio, Francisco, 2014. "Explanatory and prediction power of two macro models. An application to van-involved accidents in Spain," Transport Policy, Elsevier, vol. 32(C), pages 203-217.
    3. Frits Bijleveld & Jacques Commandeur & Siem Jan Koopman & Kees van Montfort, 2010. "Multivariate non‐linear time series modelling of exposure and risk in road safety research," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 59(1), pages 145-161, January.
    4. Weijermars, Wendy & Wesemann, Paul, 2013. "Road safety forecasting and ex-ante evaluation of policy in the Netherlands," Transportation Research Part A: Policy and Practice, Elsevier, vol. 52(C), pages 64-72.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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