Quotation Ceci, Claudia, Colaneri, Katia, Frey, Rüdiger, Köck, Verena. 2020. Value Adjustments and Dynamic Hedging of Reinsurance Counterparty Risk. SIAM Journal on Financial Mathematics. 11 (3), 788-814.


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Abstract

Reinsurance counterparty credit risk (RCCR) is the risk of a loss arising from the fact that a reinsurance company is unable to fulfill her contractual obligations toward the ceding insurer. RCCR is an important risk category for insurance companies which, so far, has been addressed mostly via qualitative approaches. In this paper we therefore study value adjustments and dynamic hedging for RCCR. We propose a novel model that accounts for contagion effects between the default of the reinsurer and the price of the reinsurance contract. We characterize the value adjustment in a reinsurance contract via a partial integro-differential equation and derive the hedging strategies using a quadratic method. The paper closes with a simulation study which shows that dynamic hedging strategies have the potential to significantly reduce RCCR.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal SIAM Journal on Financial Mathematics
Citation Index SSCI
Language English
Title Value Adjustments and Dynamic Hedging of Reinsurance Counterparty Risk
Volume 11
Number 3
Year 2020
Page from 788
Page to 814
Reviewed? Y
URL https://epubs.siam.org/doi/pdf/10.1137/19M1283045
DOI http://dx.doi.org/10.1137/19m1283045
Open Access N
JEL AMS

Associations

People
Colaneri, Katia (Former researcher)
Frey, Rüdiger (Details)
Köck, Verena (Details)
External
Ceci, Claudia (University "G. D'Annunzio" of Chieti-Pescara, Italy)
Organization
Institute for Statistics and Mathematics IN (Details)
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