This contribution starts out by noting a conflict of interest between consumers and insurers. Consumers face positive correlation in their assets (health, wealth, wisdom, i.e. skills), causing them to demand a great deal of insurance coverage. Insurers on the other hand eschew positively...

We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on cash-additive risk measures, for which the eligible asset is a...

Payments of life insurance products depend on the uncertain future evolution of survival probabilities. This uncertainty is referred to as longevity risk. Existing literature shows that the effect of longevity risk on single life annuities can be substantial, and that there exists a (natural)...

This paper considers the financial optimization problem of a firm with several sub-businesses striving for its optimal RORAC. An insightful example shows that the implementation of classical gradient capital allocation can be suboptimal if division managers are allowed to venture into all...

Recently, a lot of attention has been focused on developing portfolio allocation models that take into account the asymmetric nature of asset return distributions. In this paper, we extend Krokhmal, Palmquist, and Uryasev's approach by using CVaR-like constraints in the traditional portfolio...

We present a model for P/L insurance companies based on Asset-Liability-Management (ALM). We show analytically for multivariate normal distributed assets and claims that an overall minimum of the required risk capital can be obtained by refining the firm's asset allocation when including a ruin...

The Euler (or gradient) allocation technique defines a financial institution's marginal cost of a risk exposure via calculation of the gradient of a risk measure evaluated at the institution's current portfolio position. The technique, however, relies on an arbitrary selection of a risk measure....

Evaluating risk measures, premiums, and capital allocation based on dependent multi-losses is a notoriously difficult task. In this paper, we demonstrate how this can be successfully accomplished when losses follow the multivariate Pareto distribution of the second kind, which is an attractive...

Risk parity is an asset allocation strategy designed so each asset class contributes equally to overall portfolio risk (as measured by volatility). While risk parity offers potential advantages, its success hinges on key assumptions and a favorable environment for bonds. Like the traditional...

In this paper we study the asset-liability management of an insurance company selling “participating contracts”. Participating contracts are typical insurance policies sold worldwide.The payoff of a participating policy is linked to the portfolio or the surplus of the insurance company. We...