Group cohesion under individual regulatory constraints

DOI10.1080/03461238.2021.1934104MaRDI QIDQ5083401zbMATH OpenOpenAlexFDO

Authors Delia Coculescu, Freddy Delbaen

Publication date 20 June 2022

Published in Scandinavian Actuarial Journal (Search for Journal in Brave)

Copyright license Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International

Full work available at URL https://arxiv.org/abs/2010.01428

zbMATH Keywords

coherent risk measuresexpected shortfallgroup diversificationrisk regulation

Mathematics Subject Classification ID

Actuarial mathematics (91G05)

Abstract: We consider a group consisting of N business units. We suppose there are regulatory constraints for each unit, more precisely, the net worth of each business unit is required to belong to a set of acceptable risks, assumed to be a convex cone. Because of these requirements, there are less incentives to operate under a group structure, as creating one single business unit, or altering the liability repartition among units, may allow to reduce the required capital. We analyse the possibilities for the group to benefit from a diversification effect and economise on the cost of capital. We define and study the risk measures that allow for any group to achieve the minimal capital, as if it were a single unit, without altering the liability of business units, and despite the individual admissibility constraints. We call these risk measures cohesive risk measures.

Recommendations

• Risk capital allocation with autonomous subunits: the Lorenz set
• OPTIMAL NUMERAIRES FOR RISK MEASURES
• Risk sharing for capital requirements with multidimensional security markets
• Coherent measures of risk
• Optimization of risk measures

Cites work

• Coherent measures of risk
• EQUILIBRIUM PRICES FOR MONETARY UTILITY FUNCTIONS
• Inf-convolution of risk measures and optimal risk transfer
• On the optimal risk allocation problem
• OPTIMAL RISK SHARING FOR LAW INVARIANT MONETARY UTILITY FUNCTIONS
• Pareto Equilibria with coherent measures of risk
• Pricing, hedging, and designing derivatives with risk measures
• Quantile-based risk sharing with heterogeneous beliefs

Cited in

(3)

• Intragroup transfers, intragroup diversification and their risk assessment
• The weakness of strong ties: Collective action failure in a highly cohesive group*
• Fairness principles for insurance contracts in the presence of default risk

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