Limani, Jeta and Bettinger, Régis and Dacorogna, Michel M (2017): On the diversification benefit of reinsurance portfolios.

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Abstract
In this paper we compare the diversification benefit of portfolios containing excessofloss treaties and portfolios containing quotashare treaties, when the risk measure is the (excess) ValueatRisk or the (excess) Expected Shortfall. In a first section we introduce the setup under which we perform our investigations. Then we show that when the losses are continuous, independent, bounded, the cover unlimited and when the risk measure is the Expected Shortfall at a level alpha close to 1, a portfolio of n excessofloss treaties diversifies better than a comparable portfolio of n quotashare treaties. This result extends to the other risk measures under additional assumptions. We further provide evidence that the boundedness assumption is not crucial by deriving analytical formulas in the case of treaties with i.i.d. exponentially distributed original losses. Finally we perform the comparison in the more general setting of arbitrary continuous joint loss distributions and observe in that case that a finite cover leads to opposite results, i.e. a portfolio of n quotashare treaties diversifies better than a comparable portfolio of n excessofloss treaties at high quantile levels.
Item Type:  MPRA Paper 

Original Title:  On the diversification benefit of reinsurance portfolios 
Language:  English 
Keywords:  Diversification benefit, risk measures, portfolio, excessofloss treaties 
Subjects:  C  Mathematical and Quantitative Methods > C0  General > C00  General C  Mathematical and Quantitative Methods > C0  General > C02  Mathematical Methods C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C18  Methodological Issues: General 
Item ID:  82466 
Depositing User:  Dr Michel M Dacorogna 
Date Deposited:  12 Nov 2017 20:15 
Last Modified:  06 Oct 2019 10:24 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/82466 