Optimal Capital and Risk Transfers for Group Diversification

22 Pages Posted: 19 Dec 2007

See all articles by Damir Filipović

Damir Filipović

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Michael Kupper

Vienna Institute of Finance


Diversification is at the core of insurance and other financial business. It constitutes an important issue in the preparation of the new Solvency II framework for the regulation of European insurance undertakings. In this paper, we propose a conceptual framework for a legally enforceable capital and risk transfer which optimally accounts for the designated group diversification benefits. We also provide a consistent valuation principle which is compatible with any prior valuation method. This makes our framework fully flexible and universally applicable. A first simple numerical example illustrates the practicability of our proposal.

Suggested Citation

Filipovic, Damir and Kupper, Michael, Optimal Capital and Risk Transfers for Group Diversification. Mathematical Finance, Vol. 18, Issue 1, pp. 55-76, January 2008. Available at SSRN: https://ssrn.com/abstract=1073256 or http://dx.doi.org/10.1111/j.1467-9965.2007.00322.x

Damir Filipovic (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
Lausanne, 1015

HOME PAGE: http://people.epfl.ch/damir.filipovic

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Michael Kupper

Vienna Institute of Finance ( email )

Nordbergstrasse 15
Vienna, 1090

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