Sample Dependence of Risk Premiums

17 Pages Posted: 30 May 2019

See all articles by Erika Gomes-Gonçalves

Erika Gomes-Gonçalves

Independent

Henryk Gzyl

Instituto de Estudios Superiores de Administración (IESA)

Silvia Mayoral Blaya

Universidad Carlos III de Madrid

Date Written: May 29, 2019

Abstract

An important problem in the banking and insurance industries is that of pricing risk. The two come together when a bank buys insurance to decrease the impact of potential operational risk losses. The price of such insurance hinges on the computation of risk premiums, which involves the computation of expected values with respect to the loss distribution. When the empirical data set is not large and loss distributions are inferred from the data, a large sample dependence of the premiums on the data is to be expected. The maximum entropy-based methodologies offer model-free, non- parametric procedures to determine probability densities from empirical data with high precision. At the same time, they provide us with a framework within which to study how the sample dependence is transferred from the data to the premiums via the density. It is the aim of our paper to show how this can be done.

Keywords: loss distributions, sample dependence of loss distributions, sample dependence of risk premiums, Laplace transforms, fractional moments, maximum entropy

Suggested Citation

Gomes-Gonçalves, Erika and Gzyl, Henryk and Mayoral Blaya, Silvia, Sample Dependence of Risk Premiums (May 29, 2019). Journal of Operational Risk, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3395241

Erika Gomes-Gonçalves

Independent ( email )

Madrid
madrid
Madrid, Madrid 28014
Spain

HOME PAGE: http://https://erikapat.github.io/

Henryk Gzyl (Contact Author)

Instituto de Estudios Superiores de Administración (IESA) ( email )

Ave, Iesa, San Bernardino
Caracas, 1010
Venezuela

HOME PAGE: http://www.iesa.edu.ve

Silvia Mayoral Blaya

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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