Currency Risk in Capital Adequacy

11 Pages Posted: 28 Feb 2014

See all articles by Pablo Koch-Medina

Pablo Koch-Medina

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Enrique Loubet

affiliation not provided to SSRN

Date Written: February 28, 2014

Abstract

In this paper we analyze currency risk for an insurance company in the context of capital adequacy. We discuss the difference between translation and structural currency risk and show how a zero-currency-risk benchmark can be chosen in a natural way. We show that by aggregating risk in a particular artificial currency, a currency basket, translation risk can be eliminated and the capital position of the insurer can be decomposed in a way that makes the calculation of currency risk tractable.

Keywords: risk measures, foreign exchange risk, currency risk, capital adequacy, acceptance sets

JEL Classification: C60, G11, G22

Suggested Citation

Koch-Medina, Pablo and Loubet, Enrique, Currency Risk in Capital Adequacy (February 28, 2014). Available at SSRN: https://ssrn.com/abstract=2402594 or http://dx.doi.org/10.2139/ssrn.2402594

Pablo Koch-Medina (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Swiss Finance Institute ( email )

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

Enrique Loubet

affiliation not provided to SSRN

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