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Enterprise Risk Management in Fiancial Groups: Analysis of Risk Concentration and Default Risk

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abstract In financial conglomerates and insurance 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 an insurance 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.
   
type journal paper
   
keywords Risk concentration, diversification, enterprise risk management, default probabilities, insurance group, financial conglomerate, dependence structures, copulas
   
project Developing New Risk-Based Capital Standards Across Europe
language English
kind of paper journal article
date of appearance 30-10-2008
journal Financial Markets and Portfolio Management
publisher Springer
ISSN 1555-4961
volume of journal 22
number of issue 3
page(s) 241-258
review double-blind review
   
citation Gatzert, N., Schmeiser, H., & Schuckmann, S. (2008). Enterprise Risk Management in Fiancial Groups: Analysis of Risk Concentration and Default Risk. Financial Markets and Portfolio Management, 22(3), 241-258.