Arbeitspapier
Sensitivity-implied tail-correlation matrices
Tail-correlation matrices are an important tool for aggregating risk measurements across risk categories, asset classes and/or business segments. This paper demonstrates that traditional tail-correlation matrices|which are conventionally assumed to have ones on the diagonal|can lead to substantial biases of the aggregate risk measurement's sensitivities with respect to risk exposures. Due to these biases, decision-makers receive an odd view of the effects of portfolio changes and may be unable to identify the optimal portfolio from a risk-return perspective. To overcome these issues, we introduce the "sensitivity-implied tail-correlation matrix". The proposed tail-correlation matrix allows for a simple deterministic risk aggregation approach which reasonably approximates the true aggregate risk measurement according to the complete multivariate risk distribution. Numerical examples demonstrate that our approach is a better basis for portfolio optimization than the Value-at-Risk implied tail-correlation matrix, especially if the calibration portfolio (or current portfolio) deviates from the optimal portfolio.
- Language
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Englisch
- Bibliographic citation
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Series: ICIR Working Paper Series ; No. 33/19
- Classification
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Wirtschaft
Insurance; Insurance Companies; Actuarial Studies
Financial Institutions and Services: Government Policy and Regulation
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Subject
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Risk aggregation
Capital allocation
Portfolio optimization
- Event
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Geistige Schöpfung
- (who)
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Paulusch, Joachim
Schlütter, Sebastian
- Event
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Veröffentlichung
- (who)
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Goethe University Frankfurt, International Center for Insurance Regulation (ICIR)
- (where)
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Frankfurt a. M.
- (when)
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2021
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Paulusch, Joachim
- Schlütter, Sebastian
- Goethe University Frankfurt, International Center for Insurance Regulation (ICIR)
Time of origin
- 2021
Other Objects (12)
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Sensitivity-implied tail-correlation matrices
Sensitivity-implied tail-correlation matrices
VaR-implied tail-correlation matrices
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Implied Correlation Smile
Implied Basket Correlation Dynamics
Modelling implied correlation dynamics
Implied basket correlation dynamics
Option implied volatility risks : risk premia and tail risks
CVaR sensitivity with respect to tail thickness
Dynamic Correlation or Tail Dependence Hedging for Portfolio Selection
Implied Trinomial Trees
Sensitivity-implied tail-correlation matrices
Sensitivity-implied tail-correlation matrices
VaR-implied tail-correlation matrices
VaR-implied tail-correlation matrices
Implied Correlation Smile
Implied Basket Correlation Dynamics
Modelling implied correlation dynamics
Implied basket correlation dynamics
Option implied volatility risks : risk premia and tail risks
CVaR sensitivity with respect to tail thickness
Dynamic Correlation or Tail Dependence Hedging for Portfolio Selection