Tail dependence modeling: Application to Solvency II
Reconciling short term risks
24 April 2015
This work studies dependence of extreme events between random variables and its implications in insurance Solvency II directive. Crucial concept is tail copula, what can be described as a tail analogy of general copula concept.Tail copulas are used to detect presence of tail dependence and they also determine its shape and stregth. Impact of tail dependence on value-at-risk of a portfolio is studied on a stylized example from insurance environment and results are compared with a method prescribed in Solvency II, which models dependence via classic concept of correlation.