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Risk aggregation with dependence uncertainty

Author

Listed:
  • Bernard, Carole
  • Jiang, Xiao
  • Wang, Ruodu
Abstract
Risk aggregation with dependence uncertainty refers to the sum of individual risks with known marginal distributions and unspecified dependence structure. We introduce the admissible risk class to study risk aggregation with dependence uncertainty. The admissible risk class has some nice properties such as robustness, convexity, permutation invariance and affine invariance. We then derive a new convex ordering lower bound over this class and give a sufficient condition for this lower bound to be sharp in the case of identical marginal distributions. The results are used to identify extreme scenarios and calculate bounds on Value-at-Risk as well as on convex and coherent risk measures and other quantities of interest in finance and insurance. Numerical illustrations are provided for different settings and commonly-used distributions of risks.

Suggested Citation

  • Bernard, Carole & Jiang, Xiao & Wang, Ruodu, 2014. "Risk aggregation with dependence uncertainty," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 93-108.
    • Handle: RePEc:eee:insuma:v:54:y:2014:i:c:p:93-108
    DOI: 10.1016/j.insmatheco.2013.11.005
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    References listed on IDEAS

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