4.3.Butsic

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Exam9
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66568
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4.3.Butsic
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2011-02-15 19:39:59
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Butsic
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Butsic
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  1. Criterias for an effective risk based capital method
    • Same for all classes of insd, types of insr, types of claimant
    • Objectively measured; based on financial data and mathematical formula
    • Discriminate btwn quantifiable measures of risk
  2. Expected PH Deficit
    • EPD = DL = ∑X>A(X - A)p(x)
    • EPD = DL = ∫(X - A)p(x)dx
    • EPD ratio = dL = DL/E(loss) = DL/L
  3. EPD under Normal distribution
    • c = ratio of capital to exp loss (A = (1 + c)L)
    • cA = C/A
    • k = coefficient of variation for liabilities
    • kA = coefficient of variation for assets
    • dL = DL/L = kφ(-c/k) - cΦ(-c/k)
    • dA = DA/L = 1/(1 - cA)[kAφ(-cA/kA) - cAΦ(-cA/kA)]
  4. EPD under Lognormal distribution
    • dL = Φ(a) - (1 - c)Φ(a - k)
    • dA = Φ(b) - Φ(b - kA)/(1 - cA)
    • where a = k/2 - ln(1 + c)/k
    • and b = kA/2 + ln(1 - cA)/kA

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