Exploring the Dependence between Mortality and Market Risks
Event details
| Date | 22.01.2016 |
| Hour | 12:00 › 13:00 |
| Speaker | Michel DACOROGNA (SCOR SE, Switzerland) |
| Location | |
| Category | Conferences - Seminars |
The issue of dependence between risks is essential to assess the solvency of an insurance company. For life insurance in particular, a pandemic outbreak combined with a financial crisis could mean the end of its operations. Thus, it is important to assess the possible dependence between mortality and market risks. Dependence between those two risks is known to be small during normal time. However, it is expected to be strong in case of pandemic or major disruption of the life expectancy. Unfortunately, we do not have much empirical data to support such a calibration. Almost by definition, we will never have enough data at our disposal in the extremes. It is for answering this dilemma that we develop a statistical approach to explore empirically the dependence between risks in the extremes. We apply it to study the dependence between mortality and market risks. With data for 6 developed countries, extending over 80 years, we pick the worst 10 years of mortality and compare the average returns achieved by both financial and economic indicators during these years to their whole sample averages. We observe a reduction of the performance of some financial variables as well as an increase in correlation, but the effect remains weak and difficult to assess statistically. The economic variables seem less affected by the bad years of mortality since they do not correspond to real pandemic outbreaks, which are absent from our sample. This, of course, limits our ability to explore very extreme events and their influence on economic variables that should according to all theoretical model very significant. Nevertheless, for financial indicators, we perform various statistical tests that all point out to a weak but real effect. Joint work with Meitner Cadena (UPMC & CREAR-ESSEC Paris, France).
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Practical information
- Informed public
- Free
Organizer
- SFI@EPFL and UNIL HEC (Operations+DSA)