Sensitivity-implied tail-correlation matrices

Arbeitspapier

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.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ICIR Working Paper Series ; No. 33/19

Klassifikation und Themen

• Klassifikation: 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
• Thema: Risk aggregation ; Capital allocation ; Portfolio optimization

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Paulusch, Joachim ; Schlütter, Sebastian
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, International Center for Insurance Regulation (ICIR)
• (wo): Frankfurt a. M.
• (wann): 2021

Weitere Informationen

• Handle: http://hdl.handle.net/10419/246066
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ