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Combining multi-asset and intrinsic risk measures

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  • Laudagé, Christian
  • Sass, Jörn
  • Wenzel, Jörg

Abstract

The risk of a future payoff is commonly quantified by calculating the costs of a hedging portfolio such that the resulting position is acceptable, i.e., that it passes a capital adequacy test. A multi-asset risk measure describes the minimal external capital which has to be raised into multiple eligible assets to make a future position acceptable. Recently, the alternative methodology of intrinsic risk measures was introduced in the literature. These ask for the minimal proportion of the financial position which has to be reallocated to pass the capital adequacy test, i.e., only internal capital is used.

Suggested Citation

  • Laudagé, Christian & Sass, Jörn & Wenzel, Jörg, 2022. "Combining multi-asset and intrinsic risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 106(C), pages 254-269.
    • Handle: RePEc:eee:insuma:v:106:y:2022:i:c:p:254-269
    DOI: 10.1016/j.insmatheco.2022.07.005
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    References listed on IDEAS

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    Cited by:

    1. Jana Hlavinova & Birgit Rudloff & Alexander Smirnow, 2023. "Set-valued intrinsic measures of systemic risk," Papers 2311.14588, arXiv.org.

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    More about this item

    Keywords

    Intrinsic risk measure; Multi-asset risk measure; Multiple eligible assets; Diversification; Expected Shortfall;
    All these keywords.

    JEL classification:

    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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