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- Title
Designing a Countercyclical Insurance Program for Systemic Risk.
- Authors
Boyle, Phelim; Kim, Joseph H. T.
- Abstract
This article proposes a framework for measuring and managing systemic risk. Current solvency regulations have been criticized for their focus on individual firms rather than the system as a whole. We show how an insurance program can be designed to deal with systemic risk through a risk charge on participating institutions. The risk charge is based on the generalized co-conditional tail expectation, a conditional risk measure adapted from conditional value-at-risk. Current regulations have been criticized on the grounds that their capital requirements are procyclical. They require extra capital in periods of extreme stress thus exacerbating a crisis. We show how to construct a countercyclical risk charge and illustrate the approach using a numerical example.
- Subjects
SYSTEMIC risk (Finance); RISK (Insurance); VALUE at risk; RISK management of financial institutions; BASEL II (2004); EXTERNALITIES; MANAGEMENT
- Publication
Journal of Risk & Insurance, 2012, Vol 79, Issue 4, p963
- ISSN
0022-4367
- Publication type
Article
- DOI
10.1111/j.1539-6975.2012.01473.x