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4.3.Butsic
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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
Expected PH Deficit
EPD = D
_{L}
= ∑
_{X>A}
(X - A)p(x)
EPD = D
_{L}
= ∫(X - A)p(x)dx
EPD ratio = d
_{L}
= D
_{L}
/E(loss) = D
_{L}
/L
EPD under Normal distribution
c
= ratio of capital to exp loss (
A = (1 + c)L
)
c
_{A}
= C/A
k
= coefficient of variation for liabilities
k
_{A}
= coefficient of variation for assets
d
_{L}
= D
_{L}
/L = kφ(-c/k) - cΦ(-c/k)
d
_{A}
= D
_{A}
/L = 1/(1 - c
_{A}
)[k
_{A}
φ(-c
_{A}
/k
_{A}
) - c
_{A}
Φ(-c
_{A}
/k
_{A}
)]
EPD under Lognormal distribution
d
_{L}
= Φ(a) - (1 - c)Φ(a - k)
d
_{A}
= Φ(b) - Φ(b - k
_{A}
)/(1 - c
_{A}
)
where a = k/2 - ln(1 + c)/k
and b = k
_{A}
/2 + ln(1 - c
_{A}
)/k
_{A}
Author
Exam9
ID
66568
Card Set
4.3.Butsic
Description
Butsic
Updated
2011-02-16T00:39:59Z
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