Asymptotics for Risk Capital Allocations Based on Conditional Tail Expectation

39 Pages Posted: 11 Sep 2013

See all articles by Alexandru Vali Asimit

Alexandru Vali Asimit

Cass Business School, City, University of London

Edward Furman

York University - Department of Mathematics and Statistics

Qihe Tang

Department of Statistics and Actuarial Science

Raluca Vernic

Ovidius University of Constanta

Date Written: May 10, 2011

Abstract

An investigation of the limiting behavior of a risk capital allocation rule based on the Conditional Tail Expectation (CTE) risk measure is carried out. More specifically, with the help of general notions of Extreme Value Theory (EVT), the aforementioned risk capital allocation is shown to be asymptotically proportional to the corresponding Value-at- Risk (VaR) risk measure. The existing methodology acquired for VaR can therefore be applied to a somewhat less well-studied CTE. In the context of interest, the EVT approach is seemingly well-motivated by modern regulations, which openly strive for the excessive prudence in determining risk capitals.

Keywords: Asymptotic dependence and independence, Capital allocation, Conditional Tail Expectation, Extreme Value Theory, Heavytailed distributions, Value-at-Risk

JEL Classification: C10, C60

Suggested Citation

Asimit, Alexandru Vali and Furman, Edward and Tang, Qihe and Vernic, Raluca, Asymptotics for Risk Capital Allocations Based on Conditional Tail Expectation (May 10, 2011). Insurance: Mathematics and Economics, Vol. 49, No. 3, 2011. Available at SSRN: https://ssrn.com/abstract=2323511

Alexandru Vali Asimit

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Edward Furman

York University - Department of Mathematics and Statistics ( email )

4700 Keele Street
Toronto, M3J 1P3
Canada

Qihe Tang (Contact Author)

Department of Statistics and Actuarial Science ( email )

241 Schae er Hall
Iowa City, IA 52242
United States

Raluca Vernic

Ovidius University of Constanta ( email )

b-dul Mamaia nr. 124
Constanta, 900527
Romania

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