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Pareto Models for Risk Management

Abstract : The Pareto model is very popular in risk management, since simple analytical formulas can be derived for financial downside risk measures (value-at-risk, expected shortfall) or reinsurance premiums and related quantities (large claim index, return period). Nevertheless, in practice, distributions are (strictly) Pareto only in the tails, above (possible very) large threshold. Therefore, it could be interesting to take into account second-order behavior to provide a better fit. In this article, we present how to go from a strict Pareto model to Pareto-type distributions. We discuss inference, derive formulas for various measures and indices, and finally provide applications on insurance losses and financial risks.
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Contributor : Elisabeth Lhuillier Connect in order to contact the contributor
Submitted on : Wednesday, March 31, 2021 - 11:47:05 AM
Last modification on : Tuesday, October 19, 2021 - 10:50:33 PM

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Arthur Charpentier, Emmanuel Flachaire. Pareto Models for Risk Management. Gilles Dufrénot; Takashi Matsuki. Recent Econometric Techniques for Macroeconomic and Financial Data, 27, Springer International Publishing, pp.355-387, 2021, Dynamic Modeling and Econometrics in Economics and Finance, 978-3-030-54252-8. ⟨10.1007/978-3-030-54252-8_14⟩. ⟨hal-03186680⟩



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