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Group cohesion under individual regulatory constraints


Coculescu, Delia; Delbaen, Freddy (2022). Group cohesion under individual regulatory constraints. Scandinavian Actuarial Journal, 2022(1):80-93.

Abstract

We consider a group consisting of N business units. We suppose there are regulatory constraints for each unit; more precisely, the net worth of each business unit is required to belong to a set of acceptable risks, assumed to be a convex cone. Because of these requirements, there are less incentives to operate under a group structure, as creating one single business unit, or altering the liability repartition among units, may allow to reduce the required capital. We analyse the possibilities for the group to benefit from a diversification effect and economise on the cost of capital. We define and study the risk measures that allow for any group to achieve the minimal capital, as if it were a single unit, without altering the liability of business units, and despite the individual admissibility constraints. We call these risk measures cohesive risk measures. In the commonotonic case, we show that they are tail expectations but calculated under a different probability.

Abstract

We consider a group consisting of N business units. We suppose there are regulatory constraints for each unit; more precisely, the net worth of each business unit is required to belong to a set of acceptable risks, assumed to be a convex cone. Because of these requirements, there are less incentives to operate under a group structure, as creating one single business unit, or altering the liability repartition among units, may allow to reduce the required capital. We analyse the possibilities for the group to benefit from a diversification effect and economise on the cost of capital. We define and study the risk measures that allow for any group to achieve the minimal capital, as if it were a single unit, without altering the liability of business units, and despite the individual admissibility constraints. We call these risk measures cohesive risk measures. In the commonotonic case, we show that they are tail expectations but calculated under a different probability.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Physical Sciences > Statistics and Probability
Social Sciences & Humanities > Economics and Econometrics
Social Sciences & Humanities > Statistics, Probability and Uncertainty
Scope:Discipline-based scholarship (basic research)
Language:English
Date:2 January 2022
Deposited On:07 Jul 2021 14:51
Last Modified:25 Jun 2024 01:41
Publisher:Taylor & Francis
ISSN:0346-1238
OA Status:Hybrid
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1080/03461238.2021.1934104
Related URLs:https://www.zora.uzh.ch/id/eprint/190603/
https://arxiv.org/abs/2010.01428
Other Identification Number:merlin-id:21240
  • Content: Published Version
  • Licence: Creative Commons: Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0)