Top

European Actuarial Journal

Published in:

01-07-2011 | Original Research Paper

An integrated Cost of Risk model and its application to company valuation

Author: Alexander Baier

Published in: European Actuarial Journal | Special Issue 2/2011

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

This paper proposes an integrated approach of measuring risk and the associated cost. The model is developed from the simple practical example of a bond spread and then generalized. This leads to a class which encompasses spectral risk measures and hence includes the popular measures Value at Risk and Tail Value at Risk and under certain conditions is coherent. The defining equations lead to a “natural” decomposition by sub portfolio under practical conditions. In an application section market data is used to parametrize the measure and evaluate the capital cost of an example company.

previous article A user-friendly approach to stochastic mortality modelling

next article Solvency requirements for Swiss pension funds and how to ensure the guarantee of benefit payments at any time

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Typically it is one year as for instance in the Solvency II framework.

The applicable condition is X ≥ Y in the case of result distribution and X ≤ Y on claims distributions.

Acerbi C (2002) Spectral measures of risk: a coherent representation of subjective risk aversion. J Bank Finance 26(7):1505–1518CrossRef

Artzner P, Delbaen F, Eber JM, Heath D (1999) Coherent measures of risk. Math Finance 9(3):203–228MathSciNetMATHCrossRef

Bodoff NM (2007) Capital allocation by percentile layer. In: Presented at the Enterprise Risk Management Symposium Society of Actuaries, March 28–30, 2007, Chicago, IL. http://www.soa.org/library/monographs/other-monographs/2007/august/m-as07-1-03.pdf

Börse (2008) Online 3/2008

CEIOPS, QIS 3 Technical Specifications (2007) http://www.ceiops.eu/media/files/consultations/QIS/QIS3/QIS3TechnicalSpecificationsPart1.PDF

Goldfarb R (2006) CAS exam 8 study note: risk-adjusted performance measurement for P&C insurers. Casualty Actuarial Society. http://www.casact.org/library/studynotes/goldfarb8.2.pdf

Gründl H, Schmeiser H (2006) Ist die Steuerung von Finanzdienstleistungsunternehmen durch Kapitalallokation sinnvoll? In: Working paper on risk management and insurance no. 9, University of St. Gallen. http://www.ivw.unisg.ch/org/ivw/web.nsf/SysWebRessources/WP9/$FILE/WP9.pdf

Mack T (2002) Schadenversicherungsmathematik. Verlag Versicherungswirtschaft, Karlsruhe

Milne A, Onorato M (2007) The relationship between risk capital and required returns in financial institutions: some preliminary results. In: Presented at the Enterprise Risk Management Symposium Society of Actuaries, March 28–30, 2007, Chicago, IL. http://www.soa.org/library/monographs/other-monographs/2007/august/m-as07-1-06.pdf

10.

Overbeck L (2004) Spectral capital allocation. In: Dev A (ed) Economic capital, a practitioner guide. Risk Books, London

11.

Tasche D (2002) Expected shortfall and beyond. J Bank Finance 26(7):1519–1533CrossRef

12.

Urban M, Dittrich J, Klüppelberg C, Stölting R (2004) Allocation of risk capital to insurance portfolios. Blätter der DGVFM XXVI(3):389–406

13.

Vazza D, Aurora D, Kraemer N, Kesh S, Torres J (2007) Annual 2006 global corporate default study and ratings transitions. Standard & poor’s—research and knowledge. http://www.creditpro.standardandpoors.com/pdf/Default%20Study%20-%20Shortest%20Version.pdf

Title: An integrated Cost of Risk model and its application to company valuation
Author: Alexander Baier
Publication date: 01-07-2011
Publisher: Springer-Verlag
Published in: European Actuarial Journal / Issue Special Issue 2/2011
Print ISSN: 2190-9733
Electronic ISSN: 2190-9741
DOI: https://doi.org/10.1007/s13385-011-0018-0

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Special Issue 2/2011

Preface

Mixed dynamic and static risk-minimization with an application to survivor swaps

A user-friendly approach to stochastic mortality modelling

On the pricing of inflation-indexed caps

Optimisation of limit systems for investment risks in accordance with Solvency II

IAA AFIR Colloquium 9–11 September 2009