Credit risk and solvency capital requirements

Allali, Jérémy; Courtois, Olivier Le; Majri, Mohamed

doi:10.1007/s13385-018-0183-5

Cited by 4 publications

(1 citation statement)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…It is possible to make the following comparisons between this paper and previous papers co-written with other authors. The paper of Allali et al (2018) deals with the computation of credit Solvency Capital Requirements in a Solvency 2 approach, but does not consider diversification issues and does not make use of an interest rate model. The paper of Le Courtois et al (2021) provides interesting elements on the limits of marketconsistent approaches but, again, does not deal with diversification issues.…”

Section: Introductionmentioning

confidence: 99%

On the Diversification of Fixed Income Assets

Courtois

2022

Risks

Self Cite

View full text Add to dashboard Cite

This article introduces a new approach for dealing with the diversification/concentration risk of fixed income assets. Because Government bonds, corporate bonds, and mortgage backed securities constitute a large proportion of the assets of institutional investors in most countries, it is important to be able to determine the number of lines/issuers of such assets, not only for portfolio management but also for risk management purposes. The approach that I introduce shows the dependence of the critical number of lines of fixed income assets on the main interest rate risk and credit risk drivers. Specifically, I examine the importance of volatility risk, force of mean reversion, default risk, recovery risk, and default dependence risk on the critical number of assets in a fixed income portfolio. The methodology in this paper relies on the use of the coefficient of variation for the computation of the critical number of credit-sensitive securities in a fixed income portfolio. To the best of my knowledge, this paper is the first to develop such an approach.

show abstract

Section: Introductionmentioning

confidence: 99%

On the Diversification of Fixed Income Assets

Courtois

2022

Risks

Self Cite

View full text Add to dashboard Cite

show abstract

Utility-Consistent Valuation Schemes for the Own Risk and Solvency Assessment of Life Insurance Companies

Courtois

Majri²,

Shen

2020

Asia-Pacific Journal of Risk and Insurance

View full text Add to dashboard Cite

In this paper, we construct new valuation schemes for the liabilities and economic capital of insurance companies. Specifically, we first build a ‘SAHARA’ valuation framework based on Symmetric Asymptotic Hyperbolic Absolute Risk Aversion utility functions. Then, we construct a ‘SAHARA-CPT’ framework that incorporates the previous utility function as a value function and that is based on Cumulative Prospect Theory. The process used for assessing a life insurance company’s own funds consists in replacing the market-consistent parametrization with a utility-consistent parametrization that accounts for the risk aversion of the market and the long-term duration of the company’s commitments. Our illustrations show that this approach leads to a lower value of the Own Risk and Solvency Assessment and to a lower volatility of own funds. The framework that is based on cumulative prospect theory has the advantage over the expected utility theory framework that it considers a precautionary overweighting of extreme events, as a tradeoff for additional model complexity.

show abstract