TY - JOUR
T1 - Applying CVaR for decentralized risk management of financial companies
AU - Mulvey, John M.
AU - Erkan, Hafize G.
N1 - Funding Information:
This research is funded in part by NSF Grant DMI-0323410. Support from Towers Perrin and its Tillinghast business is also acknowledged. We appreciate the careful comments of two reviewers of this paper.
PY - 2006/2
Y1 - 2006/2
N2 - Over the past decade, financial companies have merged diverse areas including investment banking, insurance, retail banking, and trading operations. Despite this diversity, many global financial firms suffered severe losses during the recent recession. To reduce enterprise risks and increase profits, we apply a decentralized risk management strategy based on a stochastic optimization model. We extend the decentralized approach with the CVaR risk-metric, showing the advantages of CVaR over traditional risk measures such as value-at-risk. An example taken from the earthquake insurance area illustrates the concepts.
AB - Over the past decade, financial companies have merged diverse areas including investment banking, insurance, retail banking, and trading operations. Despite this diversity, many global financial firms suffered severe losses during the recent recession. To reduce enterprise risks and increase profits, we apply a decentralized risk management strategy based on a stochastic optimization model. We extend the decentralized approach with the CVaR risk-metric, showing the advantages of CVaR over traditional risk measures such as value-at-risk. An example taken from the earthquake insurance area illustrates the concepts.
KW - Conditional value-at-risk
KW - Decentralized optimization
KW - Risk management
KW - Risk measures
KW - Utility optimization
UR - http://www.scopus.com/inward/record.url?scp=32944469944&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=32944469944&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2005.04.010
DO - 10.1016/j.jbankfin.2005.04.010
M3 - Article
AN - SCOPUS:32944469944
SN - 0378-4266
VL - 30
SP - 627
EP - 644
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 2
ER -