Risk aggregation with FGM copulas
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Abstract: We offer a new perspective on risk aggregation with FGM copulas. Along the way, we discover new results and revisit existing ones, providing simpler formulas than one can find in the existing literature. This paper builds on two novel representations of FGM copulas based on symmetric multivariate Bernoulli distributions and order statistics. First, we detail families of multivariate distributions with closed-form solutions for the cumulative distribution function or moments of the aggregate random variables. We order aggregate random variables under the convex order and provide methods to compute the cumulative distribution function of aggregate rvs when the marginals are discrete. Finally, we discuss risk-sharing and capital allocation, providing numerical examples for each.
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Cited in
(15)- Stochastic representation of FGM copulas using multivariate Bernoulli random variables
- Multivariate distribution defined with Farlie-Gumbel-Morgenstern copula and mixed Erlang marginals: aggregation and capital allocation
- Risk aggregation and capital allocation using a new generalized Archimedean copula
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- Copula-based estimation of meanimiles of aggregated risks
- Risk aggregation with empirical margins: Latin hypercubes, empirical copulas, and convergence of sum distributions
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