Keywords: Solvency II, solvency capital requirements, Monte Carlo simulation, copulas, tail VAR, value–at–risk, dependence structures, risk measurement, solvency capital estimation, risk assessment
On the use of risk measures in solvency capital estimation
Regulation on the minimum capital that a financial institution or an insurance firm must hold to guarantee its solvency is proportional to a measure of its global risk. Using Monte Carlo simulation we show that, in some instances, risk measures can substantially underestimate risk. So, we address the implications on the choice of the risk measure that determines the economic capital requirement. The paper analyses the relationship between dependence structures, risk measurement and capital estimation.