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Euler allocations in the presence of non-linear reinsurance: comment on Major (2018)

Pesenti, S. M., Millossovich, P. ORCID: 0000-0001-8269-7507 and Tsanakas, A. ORCID: 0000-0003-4552-5532 (2018). Euler allocations in the presence of non-linear reinsurance: comment on Major (2018). .

Abstract

Major (2018) discusses Euler/Aumann-Shapley allocations for non-linear portfolios. He argues convincingly that many (re)insurance portfolios, while non-linear, are nevertheless positively homogeneous, owing to the way that deductibles and limits are typically set. For such non-linear but homogeneous portfolio structures, he proceeds with defining and studying a particular type of capital allocation. In this comment, we build on Major's (2018) insights but take a slightly different direction, to consider Euler capital allocations for distortion risk measures applied to homogeneous portfolios. Thus, the important problem of capital allocation in portfolios with non-linear reinsurance is solved.

Publication Type: Monograph (Working Paper)
Additional Information: This is the pre-peer reviewed version of this article published in final form in Insurance: Mathematics and Economics available at https://doi.org/10.1016/j.insmatheco.2018.09.001
Publisher Keywords: Distortion risk measures, capital allocation, Euler allocation, Aumann- Shapley, reinsurance, aggregation.
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Q Science > QA Mathematics
Departments: Cass Business School > Actuarial Science & Insurance
URI: http://openaccess.city.ac.uk/id/eprint/20755
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