Risk in a large claims insurance market with bipartite graph structure

DOI10.1287/OPRE.2016.1502zbMATH Open1378.91100DBLPjournals/ior/KleyKR16arXiv1410.8671OpenAlexW2184305381WikidataQ57747866 ScholiaQ57747866MaRDI QIDQ3178764FDOQ3178764

Gesine Reinert, Oliver Kley, Claudia Klüppelberg

Publication date: 20 December 2016

Published in: Operations Research (Search for Journal in Brave)

Abstract: We model the influence of sharing large exogeneous losses to the reinsurance market by a bipartite graph. Using Pareto-tailed claims and multivariate regular variation we obtain asymptotic results for the Value-at-Risk and the Conditional Tail Expectation. We show that the dependence on the network structure plays a fundamental role in their asymptotic behaviour. As is well-known in a non-network setting, if the Pareto exponent is larger than 1, then for the individual agent (reinsurance company) diversification is beneficial, whereas when it is less than 1, concentration on a few objects is the better strategy. An additional aspect of this paper is the amount of uninsured losses which have to be convered by society. In the situation of networks of agents, in our setting diversification is never detrimental concerning the amount of uninsured losses. If the Pareto-tailed claims have finite mean, diversification turns out to be never detrimental, both for society and for individual agents. In contrast, if the Pareto-tailed claims have infinite mean, a conflicting situation may arise between the incentives of individual agents and the interest of some regulator to keep risk for society small. We explain the influence of the network structure on diversification effects in different network scenarios.

Full work available at URL: https://arxiv.org/abs/1410.8671

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zbMATH Keywords

risk measuresbipartite graphdiversificationmarket riskreinsurancemultivariate regular variationmicro- vs. macro-prudential riskPareto-tail

Mathematics Subject Classification ID

Deterministic network models in operations research (90B10) Actuarial science and mathematical finance (91G99)

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Cited In (16)

• Conditional excess risk measures and multivariate regular variation
• ASYMPTOTICS FOR SYSTEMIC RISK WITH DEPENDENT HEAVY-TAILED LOSSES
• Optimal connectivity for a large financial network
• Asymptotics for credit portfolio losses due to defaults in a multi-sector model
• Estimation of risk contributions with MCMC
• Asymptotic capital allocation based on the higher moment risk measure
• Risk in a Large Claims Insurance Market with Bipartite Graph Structure
• Ruin probabilities for risk processes in a bipartite network
• Insurance risk analysis of financial networks vulnerable to a shock
• Preface to the Special Issue on Systemic Risk: Models and Mechanisms
• Conditional risk measures in a bipartite market structure
• Financial risk measures for a network of individual agents holding portfolios of light-tailed objects
• Suffocating Fire Sales
• A Dynamic Contagion Risk Model with Recovery Features
• Bounds for randomly shared risk of heavy-tailed loss factors
• Tail probabilities of random linear functions of regularly varying random vectors

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