Optimal capital allocations to interdependent actuarial risks |
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Institution: | 1. Department of Comparative Biomedicine and Food Science, University of Padua, Viale dell''Università 16, 35020 Legnaro, Padova, Italy;2. Department of Animal Pathology, University of Turin, via L. da Vinci 44, 10095, Grugliasco, Italy |
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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. |
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Keywords: | Archimedean copula Exchangeable Reversed hazard rate order Upper tail permutation decreasing Majorization |
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