COMMON SHOCK MODELS FOR CLAIM ARRAYS
Benjamin Avanzi, Greg Taylor, Bernard Wong
ASTIN Bulletin | Cambridge University Press (CUP) | Published : 2018
The paper is concerned with multiple claim arrays. In recognition of the extensive use by practitioners of large correlation matrices for the estimation of diversification benefits in capital modelling, we develop a methodology for the construction of such correlation structures (to any dimension). Indeed, the literature does not document any methodology by which practitioners, who often parameterise those correlations by means of informed guesswork, may do so in a disciplined and parsimonious manner. We construct a broad and flexible family of models, where dependency is induced by common shock components. Models incorporate dependencies between observations both within arrays and between ..View full abstract
Awarded by Australian Research Council
This research was supported by a grant from the Australian Actuaries Institute, as well as under Australian Research Council's Linkage Projects funding scheme (Project no. LP130100723, with funding partners Allianz Australia Insurance Ltd., Insurance Australia Group Ltd. and SuncorpMetway Ltd.). The views expressed herein are those of the authors and are not necessarily those of the supporting organisations.