The Experts below are selected from a list of 27510 Experts worldwide ranked by ideXlab platform
Laura Valderrama - One of the best experts on this subject based on the ideXlab platform.
-
liquidity at risk joint stress testing of Solvency and liquidity
Journal of Banking and Finance, 2020Co-Authors: Rama Cont, Artur Kotlicki, Laura ValderramaAbstract:Abstract The traditional approach to the stress testing of financial institutions focuses on capital adequacy and Solvency. Liquidity stress tests have been applied in parallel to and independently from Solvency stress tests, based on scenarios which may not be consistent with those used in Solvency stress tests. We propose a structural framework for the joint stress testing of Solvency and liquidity: our approach exploits the mechanisms underlying the Solvency-liquidity nexus to derive relations between Solvency shocks and liquidity shocks. These relations are then used to model liquidity and Solvency risk in a coherent framework, involving external shocks to Solvency and endogenous liquidity shocks arising from these Solvency shocks. We define the concept of “Liquidity at Risk”, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and Solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs.
-
liquidity at risk joint stress testing of Solvency and liquidity
IMF Working Papers, 2020Co-Authors: Rama Cont, Artur Kotlicki, Laura ValderramaAbstract:The traditional approach to the stress testing of financial institutions focuses on capital adequacy and Solvency. Liquidity stress tests have been applied in parallel to and independently from Solvency stress tests, based on scenarios which may not be consistent with those used in Solvency stress tests. We propose a structural framework for the joint stress testing of Solvency and liquidity: our approach exploits the mechanisms underlying the Solvency-liquidity nexus to derive relations between Solvency shocks and liquidity shocks. These relations are then used to model liquidity and Solvency risk in a coherent framework, involving external shocks to Solvency and endogenous liquidity shocks arising from these Solvency shocks. We define the concept of ‘Liquidity at Risk’, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and Solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs. The approach described in this study provides in particular a clear methodology for quantifying the impact of economic shocks resulting from the ongoing COVID-19 crisis on the Solvency and liquidity of financial institutions and may serve as a useful tool for calibrating policy responses.
Aurora Elena Dina - One of the best experts on this subject based on the ideXlab platform.
-
Comparative Assessment of Risk-Based Capital, Solvency II and Swiss Solvency Test
Theoretical and Applied Economics, 2020Co-Authors: Aurora Elena DinaAbstract:The goal of this article is to provide an updated evaluation and comparative analysis of three insurance regulatory regimes: Risk-Based Capital applied in United States of America, Solvency II used in European Union and Swiss Solvency Test applied in Switzerland, considering the major revisions that have been made in recent years: Solvency Modernization Initiative in the RBC system, Solvency II implementation since January 1st, 2016 and some updates in the Swiss Solvency Test which were influenced by Solvency II. The results of research reveal that the RBC framework has been substantially improved by: operational risk implementation for all three RBC formula and catastrophe risk implementation in Property/Casualty RBC formula, Own Risk and Solvency Assessment (ORSA), Principle-Based Reserving (PBR) and seven Insurance Core Principles adoptation. RBC regime still remains a rules-based system which applies statutory accounting values and represents an “one size fits all” model for all insurance companies as it does not encourage the own internal models development. In contrast, Solvency II and the Swiss Solvency Test meet to a high degree level of satisfaction the criteria developed by Cummins et al. (1994) and Holzmuller (2009).
-
Solvency capital requirements for a Romanian non-life insurer under Solvency II and Risk-Based Capital frameworks
Theoretical and Applied Economics, 2020Co-Authors: Aurora Elena DinaAbstract:The paper provides a theoretical assessment of the Solvency II and Risk Based Capital Solvency regimes and a numerical evaluation based on the two important characteristics of the Risk Based Capital framework: accounting principles (book values) and risk parameters calibration (standard deviations for premium and reserve risk sub-module) following the Solvency II standard formula methodology for a Romanian non-life insurance company. The results of the numerical evaluation of two assumptions reveal a substantial impact in the overestimation/underestimation of the Solvency capital requirements.
Rama Cont - One of the best experts on this subject based on the ideXlab platform.
-
liquidity at risk joint stress testing of Solvency and liquidity
Journal of Banking and Finance, 2020Co-Authors: Rama Cont, Artur Kotlicki, Laura ValderramaAbstract:Abstract The traditional approach to the stress testing of financial institutions focuses on capital adequacy and Solvency. Liquidity stress tests have been applied in parallel to and independently from Solvency stress tests, based on scenarios which may not be consistent with those used in Solvency stress tests. We propose a structural framework for the joint stress testing of Solvency and liquidity: our approach exploits the mechanisms underlying the Solvency-liquidity nexus to derive relations between Solvency shocks and liquidity shocks. These relations are then used to model liquidity and Solvency risk in a coherent framework, involving external shocks to Solvency and endogenous liquidity shocks arising from these Solvency shocks. We define the concept of “Liquidity at Risk”, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and Solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs.
-
liquidity at risk joint stress testing of Solvency and liquidity
IMF Working Papers, 2020Co-Authors: Rama Cont, Artur Kotlicki, Laura ValderramaAbstract:The traditional approach to the stress testing of financial institutions focuses on capital adequacy and Solvency. Liquidity stress tests have been applied in parallel to and independently from Solvency stress tests, based on scenarios which may not be consistent with those used in Solvency stress tests. We propose a structural framework for the joint stress testing of Solvency and liquidity: our approach exploits the mechanisms underlying the Solvency-liquidity nexus to derive relations between Solvency shocks and liquidity shocks. These relations are then used to model liquidity and Solvency risk in a coherent framework, involving external shocks to Solvency and endogenous liquidity shocks arising from these Solvency shocks. We define the concept of ‘Liquidity at Risk’, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and Solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs. The approach described in this study provides in particular a clear methodology for quantifying the impact of economic shocks resulting from the ongoing COVID-19 crisis on the Solvency and liquidity of financial institutions and may serve as a useful tool for calibrating policy responses.
Mazin A. M. Al Janabi - One of the best experts on this subject based on the ideXlab platform.
-
Measuring market and credit risk under Solvency II: evaluation of the standard technique versus internal models for stock and bond markets
European Actuarial Journal, 2020Co-Authors: Saeed Asadi, Mazin A. M. Al JanabiAbstract:The 2008–2009 Global Financial Crisis (GFC) has swayed regulators to set forth the Solvency II agreement for determining Solvency Capital Requirement (SCR) for insurance companies. In this paper, we apply novel internal models to investigate whether the latest version of the Solvency II standard model demands sufficient capital charges, both in normal and stressed times, for the different risk categories included in bond and stock portfolios. Because the GFC has shown that extreme events on the tail of probability distributions can occur quite often, our empirical findings indicate that the magnitude of the equity risk using the GJR–EVT–Copula method requires insurers to keep more SCR for stock portfolios than the Solvency II standard model. In the case of a bond portfolio, we conclude that the Solvency II standard model requires approximately the same SCR as our internal model for the higher quality and longer maturity bonds, whereas the standard model overestimates SCR for the lower quality and shorter maturity bonds. At the same time, the standard model underestimates interest-rate risk and overestimates spread risk. Overall, the discrepancies in the estimated SCRs between the Solvency II standard technique and our internal models increase as the level of the risks rise for both stock and bond markets. Our empirical results are in line with other competing internal modeling techniques regarding stock market investment and bond portfolios with the higher quality and longer maturity bonds, while for the lower quality and shorter maturity bonds, the results contradict other modeling procedures. The obtained empirical results are interesting in terms of theory and practical applications and have important implication for compliance with the Solvency II capital requirements. Likewise, it can be of interest to insurance regulators, policymakers, actuaries, and researchers within the field of insurance and risk management.
Artur Kotlicki - One of the best experts on this subject based on the ideXlab platform.
-
liquidity at risk joint stress testing of Solvency and liquidity
Journal of Banking and Finance, 2020Co-Authors: Rama Cont, Artur Kotlicki, Laura ValderramaAbstract:Abstract The traditional approach to the stress testing of financial institutions focuses on capital adequacy and Solvency. Liquidity stress tests have been applied in parallel to and independently from Solvency stress tests, based on scenarios which may not be consistent with those used in Solvency stress tests. We propose a structural framework for the joint stress testing of Solvency and liquidity: our approach exploits the mechanisms underlying the Solvency-liquidity nexus to derive relations between Solvency shocks and liquidity shocks. These relations are then used to model liquidity and Solvency risk in a coherent framework, involving external shocks to Solvency and endogenous liquidity shocks arising from these Solvency shocks. We define the concept of “Liquidity at Risk”, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and Solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs.
-
liquidity at risk joint stress testing of Solvency and liquidity
IMF Working Papers, 2020Co-Authors: Rama Cont, Artur Kotlicki, Laura ValderramaAbstract:The traditional approach to the stress testing of financial institutions focuses on capital adequacy and Solvency. Liquidity stress tests have been applied in parallel to and independently from Solvency stress tests, based on scenarios which may not be consistent with those used in Solvency stress tests. We propose a structural framework for the joint stress testing of Solvency and liquidity: our approach exploits the mechanisms underlying the Solvency-liquidity nexus to derive relations between Solvency shocks and liquidity shocks. These relations are then used to model liquidity and Solvency risk in a coherent framework, involving external shocks to Solvency and endogenous liquidity shocks arising from these Solvency shocks. We define the concept of ‘Liquidity at Risk’, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and Solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs. The approach described in this study provides in particular a clear methodology for quantifying the impact of economic shocks resulting from the ongoing COVID-19 crisis on the Solvency and liquidity of financial institutions and may serve as a useful tool for calibrating policy responses.
