Multivariate models for operational risk

Böcker, Klaus; Klüppelberg, Claudia

doi:10.1080/14697680903358222

Cited by 63 publications

(60 citation statements)

References 9 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Böcker and Klüppelberg (2010), Chavez-Demoulin et al (2006, Moscadelli (2004), Puccetti and Rüschendorf (2014), and Tursunalieva and Silvapulle (2014). All these contributions seem to agree on the use of extreme value theory, and in particular of the Generalized Pareto approximation of the right tail Ferreira 2006, Falk et al 2004), to study the behavior of large operational losses (see Subsection 2.2 for more details.).…”

Section: Introductionmentioning

confidence: 97%

Expected Shortfall Estimation for Apparently Infinite-Mean Models of Operational Risk

Cirillo

Taleb

2015

SSRN Journal

View full text Add to dashboard Cite

Section: Introductionmentioning

confidence: 97%

Expected Shortfall Estimation for Apparently Infinite-Mean Models of Operational Risk

Cirillo

Taleb

2015

SSRN Journal

View full text Add to dashboard Cite

“…Here we examine the LCR treaty: having set a fixed follow-up time t, we delete from the process the largest claim occurring up to and including that time. Defined in this way, the scheme incorporates a retrospective feature akin to the construction of a "lookback" option as understood in finance 1 .…”

Section: Reinsurance Modelsmentioning

confidence: 99%

“…In general, the ruin time with reinsurance will exceed or equal that without, for each sample path, and the question we address here is how to measure this effect with regard to the company's viability. 1 The LCR procedure can be made prospective by implementing it as a forward looking dynamic procedure in real time, from the cedant's point of view. Designate as time zero the time at which the reinsurance is taken out.…”

Section: Reinsurance Modelsmentioning

confidence: 99%

“…A need for heavy tailed insurance risk models has been stressed, for example, by [1][2][3], and in this context, special interest lies in the possibility of reinsurance, whereby the company can hedge its risk of suffering extremely large claims. A reinsurance scheme increases its potential lifetime, thereby reducing the company's risk of default.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The Effects of Largest Claim and Excess of Loss Reinsurance on a Company’s Ruin Time and Valuation

Fan

Griffin

Maller

et al. 2017

Risks

View full text Add to dashboard Cite

Abstract:We compare two types of reinsurance: excess of loss (EOL) and largest claim reinsurance (LCR), each of which transfers the payment of part, or all, of one or more large claims from the primary insurance company (the cedant) to a reinsurer. The primary insurer's point of view is documented in terms of assessment of risk and payment of reinsurance premium. A utility indifference rationale based on the expected future dividend stream is used to value the company with and without reinsurance. Assuming the classical compound Poisson risk model with choices of claim size distributions (classified as heavy, medium and light-tailed cases), simulations are used to illustrate the impact of the EOL and LCR treaties on the company's ruin probability, ruin time and value as determined by the dividend discounting model. We find that LCR is at least as effective as EOL in averting ruin in comparable finite time horizon settings. In instances where the ruin probability for LCR is smaller than for EOL, the dividend discount model shows that the cedant is able to pay a larger portion of the dividend for LCR reinsurance than for EOL while still maintaining company value. Both methods reduce risk considerably as compared with no reinsurance, in a variety of situations, as measured by the standard deviation of the company value. A further interesting finding is that heaviness of tails alone is not necessarily the decisive factor in the possible ruin of a company; small and moderate sized claims can also play a significant role in this.

show abstract

“…Following the standard division of banks' activities into business lines, as required by the so-called standardized and advanced measurement approaches (BCBS 2011b, Moscadelli 2004 has even shown that for corporate finance, trading and sales and payment and settlement, the loss distribution has a deal with its extremely heavy-tailed behaviour, e.g. Böcker and Klüppelberg (2010), Chavez-Demoulin et al (2006), Chavez-Demoulin et al (2015), Moscadelli (2004), Puccetti and Rüschendorf (2014), and Tursunalieva and Silvapulle (2014). All these contributions seem to agree on the use of extreme value theory, and in particular of the Generalized Pareto approximation of the right tail (Falk et al 2004, de Haan andFerreira 2006), to study the behaviour of large operational losses (see section 2.2 for more details.).…”

Section: Introductionmentioning

confidence: 99%

Expected shortfall estimation for apparently infinite-mean models of operational risk

Cirillo

Taleb

2016

Quantitative Finance

View full text Add to dashboard Cite

Statistical analyses on actual data depict operational risk as an extremely heavy-tailed phenomenon, able to generate losses so extreme as to suggest the use of infinite-mean models. But no loss can actually destroy more than the entire value of a bank or of a company, and this upper bound should be considered when dealing with tail-risk assessment. Introducing what we call the dual distribution, we show how to deal with heavy-tailed phenomena with a remote yet finite upper bound. We provide methods to compute relevant tail quantities such as the Expected Shortfall, which is not available under infinite-mean models, allowing adequate provisioning and capital allocation. This also permits a measurement of fragility. The main difference between our approach and a simple truncation is in the smoothness of the transformation between the original and the dual distribution. Our methodology is useful with apparently infinite-mean phenomena, as in the case of operational risk, but it can be applied in all those situations involving extreme fat tails and bounded support.

show abstract

Multivariate models for operational risk

Cited by 63 publications

References 9 publications

Expected Shortfall Estimation for Apparently Infinite-Mean Models of Operational Risk

Expected Shortfall Estimation for Apparently Infinite-Mean Models of Operational Risk

The Effects of Largest Claim and Excess of Loss Reinsurance on a Company’s Ruin Time and Valuation

Expected shortfall estimation for apparently infinite-mean models of operational risk

Contact Info

Product

Resources

About