TY - JOUR
T1 - Optimal capital allocations to interdependent actuarial risks
AU - You, Yinping
AU - Li, Xiaohu
PY - 2014/7
Y1 - 2014/7
N2 - 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.
AB - 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.
KW - Archimedean copula
KW - Exchangeable
KW - Majorization
KW - Reversed hazard rate order
KW - Upper tail permutation decreasing
UR - http://www.scopus.com/inward/record.url?scp=84901999494&partnerID=8YFLogxK
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U2 - 10.1016/j.insmatheco.2014.05.007
DO - 10.1016/j.insmatheco.2014.05.007
M3 - Article
AN - SCOPUS:84901999494
SN - 0167-6687
VL - 57
SP - 104
EP - 113
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
IS - 1
ER -