Modeling and Management of Nonlinear Dependencies - Copulas in Dynamic Financial Analysis

31 Pages Posted: 13 Oct 2009

See all articles by Martin Eling

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Denis Toplek

University of St. Gallen

Multiple version iconThere are 2 versions of this paper

Abstract

We study the influence of nonlinear dependencies on a non-life insurer's risk and return profile. To achieve this, we integrate several copula models in a dynamic financial analysis framework and conduct numerical tests. We also test risk management strategies in response to adverse outcomes. Nonlinear dependencies have a crucial influence on the insurer's risk profile that can hardly be affected by the analyzed management strategies. We find large differences in risk assessment for the ruin probability and for the expected policyholder deficit. This has important implications for insurers, regulators, and rating agencies that use these measures as a foundation for internal risk models, capital standards, and ratings.

Suggested Citation

Eling, Martin and Toplek, Denis, Modeling and Management of Nonlinear Dependencies - Copulas in Dynamic Financial Analysis. Journal of Risk and Insurance, Vol. 76, Issue 3, pp. 651-681, September 2009. Available at SSRN: https://ssrn.com/abstract=1487239 or http://dx.doi.org/10.1111/j.1539-6975.2009.01318.x

Martin Eling

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Denis Toplek

University of St. Gallen ( email )

Kirchlistrasse 2
St. Gallen, St. Gallen 9000
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
3
Abstract Views
350
PlumX Metrics