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Multivariate distribution defined with Farlie–Gumbel–Morgenstern copula and mixed Erlang marginals: Aggregation and capital allocation

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  • Cossette, Hélène
  • Côté, Marie-Pier
  • Marceau, Etienne
  • Moutanabbir, Khouzeima

Abstract

In this paper, we investigate risk aggregation and capital allocation problems for a portfolio of possibly dependent risks whose multivariate distribution is defined with the Farlie–Gumbel–Morgenstern copula and mixed Erlang distribution marginals. In such a context, we first show that the aggregate claim amount has a mixed Erlang distribution. Based on a top-down approach, closed-form expressions for the contribution of each risk are derived using the TVaR and covariance rules. These findings are illustrated with numerical examples.

Suggested Citation

  • Cossette, Hélène & Côté, Marie-Pier & Marceau, Etienne & Moutanabbir, Khouzeima, 2013. "Multivariate distribution defined with Farlie–Gumbel–Morgenstern copula and mixed Erlang marginals: Aggregation and capital allocation," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 560-572.
    • Handle: RePEc:eee:insuma:v:52:y:2013:i:3:p:560-572
    DOI: 10.1016/j.insmatheco.2013.03.006
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    References listed on IDEAS

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    22. Yin, Cuihong & Sheldon Lin, X. & Huang, Rongtan & Yuan, Haili, 2019. "On the consistency of penalized MLEs for Erlang mixtures," Statistics & Probability Letters, Elsevier, vol. 145(C), pages 12-20.

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