MODEL RISK AND DETERMINATION OF SOLVENCY CAPITAL IN THE SOLVENCY 2 FRAMEWORK
Abstract
This paper investigates the robustness of the Solvency Capital Requirement (SCR) when a log-normal reference model is slightly disturbed by the heaviness of its tail distribution. It is shown that situations with "almost" lognormal data and a rather important variation between the "disturbed" SCR and the reference SCR can be built. The consequences of the estimation errors on the level of the SCR are studied too.
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