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How are Copula Based Capital Aggregation Models Being Used?

Source: Mash Risk Television

AEGON NV
John Manistre, FSA,FCIA,MAAA, VP Risk Research

Runtime: 7:10

Key Takeaways:

  1. Copula based models represent the next stage in modeling sophistication.
  2. When copula based models are used to aggregate capital, two new phenomena emerge:
    • Diversification benefits are reduced because of additional tail dependence in the copula.
    • Diversification benefits are increased when aggregating risks that have finite variance and the model does not have too much symmetry.
  3. The results of copula based capital aggregation models can always be locally approximated by relatively simple formulas, which can be put into practice as both computational short cuts and presentation tools.
  4. For a copy of Manistre’s research paper, “A Practical Concept of Tail Correlation,”
    click here.

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