Generating unfavourable VaR scenarios under Solvency II with patchwork copulas
The central idea of the paper is to present a general simple patchwork construction principle for multivariate copulas that create unfavourable VaR (i.e. Value at Risk) scenarios while maintaining given marginal distributions. This is of particular interest for the construction of Internal Models in...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
De Gruyter
2021-10-01
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| Series: | Dependence Modeling |
| Subjects: | |
| Online Access: | https://doi.org/10.1515/demo-2021-0115 |
| _version_ | 1798042928693641216 |
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| author | Pfeifer Dietmar Ragulina Olena |
| author_facet | Pfeifer Dietmar Ragulina Olena |
| author_sort | Pfeifer Dietmar |
| collection | DOAJ |
| description | The central idea of the paper is to present a general simple patchwork construction principle for multivariate copulas that create unfavourable VaR (i.e. Value at Risk) scenarios while maintaining given marginal distributions. This is of particular interest for the construction of Internal Models in the insurance industry under Solvency II in the European Union. Besides this, the Delegated Regulation by the European Commission requires all insurance companies under supervision to consider different risk scenarios in their risk management system for the company’s own risk assessment. Since it is unreasonable to assume that the potential worst case scenario will materialize in the company, we think that a modelling of various unfavourable scenarios as described in this paper is likewise appropriate. Our explicit copula approach can be considered as a special case of ordinal sums, which in two dimensions even leads to the technically worst VaR scenario. |
| first_indexed | 2024-04-11T22:43:22Z |
| format | Article |
| id | doaj.art-4b9e0080a72a4fb89a432960302ee97c |
| institution | Directory Open Access Journal |
| issn | 2300-2298 |
| language | English |
| last_indexed | 2024-04-11T22:43:22Z |
| publishDate | 2021-10-01 |
| publisher | De Gruyter |
| record_format | Article |
| series | Dependence Modeling |
| spelling | doaj.art-4b9e0080a72a4fb89a432960302ee97c2022-12-22T03:58:55ZengDe GruyterDependence Modeling2300-22982021-10-019132734610.1515/demo-2021-0115Generating unfavourable VaR scenarios under Solvency II with patchwork copulasPfeifer Dietmar0Ragulina Olena1Carl von Ossietzky Universität Oldenburg, GermanyTaras Shevchenko National University of Kyiv, UkraineThe central idea of the paper is to present a general simple patchwork construction principle for multivariate copulas that create unfavourable VaR (i.e. Value at Risk) scenarios while maintaining given marginal distributions. This is of particular interest for the construction of Internal Models in the insurance industry under Solvency II in the European Union. Besides this, the Delegated Regulation by the European Commission requires all insurance companies under supervision to consider different risk scenarios in their risk management system for the company’s own risk assessment. Since it is unreasonable to assume that the potential worst case scenario will materialize in the company, we think that a modelling of various unfavourable scenarios as described in this paper is likewise appropriate. Our explicit copula approach can be considered as a special case of ordinal sums, which in two dimensions even leads to the technically worst VaR scenario.https://doi.org/10.1515/demo-2021-0115solvency iicopulaspatchwork copulasbernstein copulasmonte carlo methods62h0562h1262h1711k45 |
| spellingShingle | Pfeifer Dietmar Ragulina Olena Generating unfavourable VaR scenarios under Solvency II with patchwork copulas Dependence Modeling solvency ii copulas patchwork copulas bernstein copulas monte carlo methods 62h05 62h12 62h17 11k45 |
| title | Generating unfavourable VaR scenarios under Solvency II with patchwork copulas |
| title_full | Generating unfavourable VaR scenarios under Solvency II with patchwork copulas |
| title_fullStr | Generating unfavourable VaR scenarios under Solvency II with patchwork copulas |
| title_full_unstemmed | Generating unfavourable VaR scenarios under Solvency II with patchwork copulas |
| title_short | Generating unfavourable VaR scenarios under Solvency II with patchwork copulas |
| title_sort | generating unfavourable var scenarios under solvency ii with patchwork copulas |
| topic | solvency ii copulas patchwork copulas bernstein copulas monte carlo methods 62h05 62h12 62h17 11k45 |
| url | https://doi.org/10.1515/demo-2021-0115 |
| work_keys_str_mv | AT pfeiferdietmar generatingunfavourablevarscenariosundersolvencyiiwithpatchworkcopulas AT ragulinaolena generatingunfavourablevarscenariosundersolvencyiiwithpatchworkcopulas |