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Economic Capital & Enterprise Risk Management

Economic Capital describes the risk-adjusted financial value of institutions and related decision-making. Economic Capital Modelling underpins this process with a growing influence over management, operations and oversight of insurance companies and other public and private institutions.

Internal economic capital models have emerged as the spine and nervous system of corporate operations, enterprise risk management and resource allocation. Assessed by regulators and other stakeholders, internal economic capital models are the expression of a Board's direction and management –the cockpit of the organisation. A significant proportion of Willis Research Network science is consumed and deployed within internal economic capital models and is where the science has significant influence and impact.

Latest on Economic Capital & ERM

  • Risk Management Institute’s Quarterly Credit Report

    Date: May 09, 2013 | Type: Article | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM
    Hub: Financial Stability & Insurance Regulation

    Authors: National University of Singapore Risk Management Institute
    Fields: Operational Risk

    Summary: The Quarterly Credit Report (QCR) is an analysis of credit outlooks across regions, economies and sectors. This analysis incorporates probabilities of default (PD) generated by the Risk Management Institute’s (RMI) default forecast model, a part of the RMI Credit Research Initiative at the National University of Singapore (NUS). The objective of the QCR is to provide insights on trends in credit outlooks to credit professionals, investors and researchers.

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    Global Risks 2013 - Eighth Edition

    Date: Jan 08, 2013 | Type: Paper | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM
    Hub: Systemic Risk

    Authors: Lee Howell, World Economic Forum, Editor in Chief
    Fields:

    Summary: The World Economic Forum’s Global Risks 2013 report is developed from an annual survey of over 1,000 experts from industry, government, academia and civil society who were asked to review a landscape of 50 global risks.

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    Multiperiod corporate default prediction—A forward intensity approach

    Date: Sep 03, 2012 | Type: Article | Attachment: Download File ›
    Journal: Journal of Econometrics |

    Pillar: Economic Capital & ERM
    Hub: Socio-Economic Impact & Industry Risks

    Authors: Jin-Chuan Duan, Jie Sun, Tao Wang
    Fields:

    Summary: In this paper a forward intensity model for the prediction of corporate defaults over different future periods is proposed.

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    Measuring Distance-to-Default for Financial and Non-Financial Firms

    Date: Jul 31, 2012 | Type: Article | Attachment: Download File ›
    Journal: Global Credit Review |

    Pillar: Economic Capital & ERM
    Hub: Insurance & Sustainable Business

    Authors: Jin-Chuan Duan, Tao Wang
    Fields:

    Summary: This article reviews several empirical methodologies for estimating Distance-to-default (DTD), a popular measure for gauging how far a limited-liability firm is away from default.

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    Practices and issues in operational risk modeling under Basel II

    Date: Apr 29, 2011 | Type: Article | Attachment: Download File ›
    Journal: Lithuanian Mathematical Journal | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM
    Hub: Financial Stability & Insurance Regulation

    Authors: Paul Embrechts and Marius Hofert
    Fields:

    Summary: This paper provides an introduction and overview to operational risk modeling according to the Basel II legal documents and summarize observed practices and issues as well as suggested approaches for measuring and quantifying operational risk.

    Applications of Forward Mortality Factor Models

    Date: Jan 01, 2011 | Type: Paper |

    Pillar: Economic Capital & ERM
    Hub: Systemic Risk
    Program: OECD High Level Risk Forum

    Authors: Nan Zhu and Daniel Bauer
    Fields: Life Insurance - Economic Capital Modelling

    Summary: Two of the most important challenges for the application of stochastic mortality models in life insurance practice are their complexity and their apparent incompatibility with classical life contingencies theory, which provides the backbone of insurers' EDP systems......

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    Modeling defaults with nested Archimedean copulas

    Date: Sep 01, 2010 | Type: Paper | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM

    Authors: Marius Hofert
    Fields: Credit Risk Modelling

    Summary: Presents an extension of the model suggested by Schönbucher and Schubert to account for the fact that that modeled portfolio components affected by defaults show significantly different levels of dependence depending on whether they belong to the same industry sector or not.

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    Parimutuel Insurance for Hedging against Catastrophic Risk

    Date: Sep 01, 2010 | Type: Paper | Attachment: Download File ›

    Pillar: Economic Capital & ERM

    Authors: Chieh Ou-Yang and Neil Doherty
    Fields: Alternative Risk Transfer

    Summary: This paper examines whether parimutuels can hedge risk-averse people against catastrophic losses.

    On the Calculation of the Solvency Capital Requirement based on Nested Simulations

    Date: Aug 10, 2010 | Type: Paper | Attachment: Download File ›

    Pillar: Economic Capital & ERM

    Authors: Daniel Bauer, Daniela Bergmann and Andreas Reuss
    Fields: Regulation: Solvency 2 & Life Insurance Risk Capital

    Summary: This paper provides a mathematical framework for the derivation of the required risk capital under Solvency II and reviews different alternatives for the numerical implementation based on nested simulations. In particular, we seek to provide guidance for practitioners by illustrating and comparing the different techniques based on numerical experiments.

    Managing Extremes: Forecasting Climate and Capital in a Modelled World

    Date: Jun 11, 2010 | Type: Presentation | Attachment: Download File ›
    Conf: International Insurance Society Annual Meeting, Madrid, June 2010 |

    Pillar: Economic Capital & ERM
    Hub: Financial Stability & Insurance Regulation

    Authors: Rowan Douglas
    Fields: Catastrophe, Capital and Regulatory Modelling

    Summary: A description of how science, catastrophe risk modelling, internal capital modelling and regulatory and credit modelling and forming an integrated supply chain. presented at International Insurance Society Annual Meeting, Madrid, June 2010

    Modeling the Evolution of Implied CDO Correlations

    Date: Jun 01, 2010 | Type: Paper | Journal: Financial Markets and Portfolio Management | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM

    Authors: Marius Hofert, Matthias Scherer and Rudi Zagst
    Fields: Credit Risk Modelling

    Summary:

    Oil prices – Brownian motion or mean reversion? A study using a one year ahead density forecast criterion

    Date: Jan 01, 2010 | Type: Paper | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM

    Authors: Nigel Meade
    Fields: Exposure & Vulnerability

    Summary:

    Constructing hierarchical Archimedean copulas with Lévy subordinators

    Date: Nov 01, 2009 | Type: Paper | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM

    Authors: Markus Stricker
    Fields:

    Summary: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6WK9-4XG3S83-3&_user=10&_coverDate=07%2F31%2F2010&_rdoc=1&_fmt=high&_orig=search&_origin=search&_sort=d&_docanchor=&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=1d88745058c7c658c94732db859c4f21&searchtype=a

    System economics: overcoming the pitfalls of forecasting models

    Date: May 02, 2009 | Type: Paper |

    Pillar: Economic Capital & ERM
    Hub: Science & Innovation

    Authors: Patrick McSharry D. Orrell
    Fields: Atmospheric

    Summary: An outline of the main foundations for a theory of systems economics.

    Multivariate hierarchical copulas with shocks

    Date: May 01, 2009 | Type: Paper |

    Pillar: Economic Capital & ERM
    Hub: Science & Innovation

    Authors: Markus Stricker
    Fields: GIS & Geovisualisation

    Summary: http://www.springerlink.com/content/g717782128n57721/

    CDO pricing with nested Archimedean copulas

    Date: Mar 01, 2008 | Type: Paper | Journal: Quantitative Finance | Ext. Link: Click Here ›

    Pillar: Economic Capital & ERM

    Authors: Marius Hofert & Matthias Scherer
    Fields:

    Summary: In this paper the authors present a default model based on nested Archimedean copulas that is able to capture hierarchical dependence structures among the obligors in a credit portfolio.

About WRN

As economic, social and environmental uncertainties increase, institutions and populations seek greater resilience to support sustainable growth. Science and insurance lay at the heart of understanding, managing and sharing these risks, building more secure futures at local and global scales.

The Willis Research Network (WRN) operates across the full spectrum of risk from natural catastrophe, to legal liability, financial and security issues linked across driving themes: Resilience, Security & Sustainable Growth; Managing Extremes; Insurance & Risk Management and Mastering the Modelled World.

All Members and activities are united by a common aim: improving resilience by integrating first class science into operational and financial decision-making across public and private institutions.

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  • The WRN was formed in September 2006 to support leading academic research into extreme events, with a specific focus on responding to the challenges faced by businesses, insurers and governments
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