Enterprise risk management in financial groups: analysis of risk concentration and default risk |
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Authors: | Nadine Gatzert Hato Schmeiser Stefan Schuckmann |
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Institution: | (1) University of St. Gallen, Institute of Insurance Economics, Kirchlistrasse 2, 9010, St. Gallen, Switzerland |
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Abstract: | In financial groups, enterprise risk management is becoming increasingly important in controlling and managing the different
independent legal entities in the group. The aim of this paper is to assess and relate risk concentration and joint default
probabilities of the group’s legal entities in order to achieve a more comprehensive picture of a financial group’s risk situation.
We further examine the impact of the type of dependence structure on results by comparing linear and nonlinear dependencies
using different copula concepts under certain distributional assumptions. Our results show that even if financial groups with
different dependence structures do have the same risk concentration factor, joint default probabilities of different sets
of subsidiaries can vary tremendously.
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Keywords: | Enterprise risk management Copulas Financial groups Joint default risk |
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