Capital Requirement and Allocation for Insurance Companies by the Co-TailVaR-Based Insolvency Ezchange Option Method
Determining the total capital requirement and allocating capital to business lines are two key parts of financial and risk management for a multi-business insurance company. Several well-known methods have been proposed to calculate these qualities. Our paper considers the total capital requirement for a multi-business insurance company based on Co-TailVaR from each line level to the entire company level. The benefits of diversification arc considered in turn. Following the Myers-Read method, we initially allocate the total capital to each line by equalizing the marginal insolvency exchange option value. Then we apply some specific rules to obtain the weighted capital that should be allocated to each line. We also propose a Co-TailVaK-based insolvency exchange option method in which the total requirement of capital is determined by each lines risk and the diversification benefit. Furthermore we take both each lines risk and each lines contribution to the entire company insolvency as factors determining the capital allocation. Such capital allocation has the property of adding up. At last we provide a detailed example to illustrate our method.
Yongfeng Wei Zhaoben Fang Zhang Tao
Department of Statistics and Finance, University of Science and Technology of China, Hefei, Anhui, 230026, China
国际会议
北京
英文
350-354
2009-07-24(万方平台首次上网日期,不代表论文的发表时间)