Optimal capital allocations to interdependent actuarial risks

Yinping You, Xiaohu Li

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

Abstract

This paper further studies the capital allocation concerning mutually interdependent random risks. In the context of exchangeable random risks, we establish that risk-averse insurers incline to evenly distribute the total capital among multiple risks. For risk-averse insurers with decreasing convex loss functions, we prove that more capital should be allocated to the risk with the larger reversed hazard rate when risks are coupled by an Archimedean copula. Also, sufficient conditions are developed to exclude the worst capital allocations for random risks with some specific Archimedean copulas.

Original languageEnglish
Pages (from-to)104-113
Number of pages10
JournalInsurance: Mathematics and Economics
Volume57
Issue number1
DOIs
StatePublished - Jul 2014

Keywords

  • Archimedean copula
  • Exchangeable
  • Majorization
  • Reversed hazard rate order
  • Upper tail permutation decreasing

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