Bounds and approximations for sums of dependent log-elliptical random variables
Dhaene, Denuit, Goovaerts, Kaas and Vyncke [Dhaene, J., Denuit, M., Goovaerts, M.J., Kaas, R., Vyncke, D., 2002a. The concept of comonotonicity in actuarial science and finance: theory. Insurance Math. Econom. 31 (1), 3-33; Dhaene, J., Denuit, M., Goovaerts, M.J., Kaas, R., Vyncke, D., 2002b. The concept of comonotonicity in actuarial science and finance: Applications. Insurance Math. Econom. 31 (2), 133-161] have studied convex bounds for a sum of dependent random variables and applied these to sums of log-normal random variables. In particular, they have shown how these convex bounds can be used to derive closed-form approximations for several of the risk measures of such a sum. In this paper we investigate to which extent their general results on convex bounds can also be applied to sums of log-elliptical random variables which incorporate sums of log-normals as a special case. Firstly, we show that unlike the log-normal case, for general sums of log-ellipticals the convex lower bound does no longer result in closed-form approximations for the different risk measures. Secondly, we demonstrate how instead the weaker stop-loss order can be used to derive such closed-form approximations. We also present numerical examples to show the accuracy of the proposed approximations.
Year of publication: |
2009
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Authors: | Valdez, Emiliano A. ; Dhaene, Jan ; Maj, Mateusz ; Vanduffel, Steven |
Published in: |
Insurance: Mathematics and Economics. - Elsevier, ISSN 0167-6687. - Vol. 44.2009, 3, p. 385-397
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Publisher: |
Elsevier |
Keywords: | Comonotonicity Bounds Elliptical distributions Log-elliptical distributions |
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