Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2004-09-20 Number: 04-102/2 Author-Name: J.L. Geluk Author-Email: firstname.lastname@example.org Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam Author-Name: C.G. de Vries Author-Email: email@example.com Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam Title: Weighted Sums of Subexponential Random Variables and Asymptotic Dependence between Returns on Reinsurance Equities Abstract: Suppose are independent subexponential random variables with partial sums. We show that if the pairwise sums of the ís are subexponential, then is subexponential and . The result is applied to give conditions under which as , where are constants such that is a.s. convergent. Asymptotic tail probabilities for bivariate linear combinations of subexponential random variables are given. These results are applied to explain the joint movements of the stocks of reinsurers. Portfolio investment and retrocession practices in the reinsurance industry expose different reinsurers to the same subexponential risks on both sides of their balance sheets. This implies that reinsurerís equity returns can be asymptotically dependent, exposing the industry to systemic risk.
Published in Insurance, Mathematics and Economics. (2006, 38, 39-56.) Keywords: Subexponentiality; regular variation; systemic risk; asymptotic dependence File-Url: http://papers.tinbergen.nl/04102.pdf File-Format: application/pdf File-Size: 675521 bytes Handle: RePEc:tin:wpaper:20040102