THE APPLICATION OF VAR IN INSURANCE MARKET WITH MONTE CARLO SIMULATION (THE CASE OF COLLISION INSURANCE CLAIMS IN INSURANCE COMPANY)

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MAHDAVI GHADIR; SAMADI MALIHE

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Paper Information

Journal: IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH) Year:2012 | Volume:27 | Issue:1 (105) Page(s): 49-73

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Information Journal Paper

Title

THE APPLICATION OF VAR IN INSURANCE MARKET WITH MONTE CARLO SIMULATION (THE CASE OF COLLISION INSURANCE CLAIMS IN INSURANCE COMPANY)

Author(s)

MAHDAVI GHADIR | SAMADI MALIHE | Issue Writer Certificate

Keywords

VAR-OPQ2

VAR-MCQ1

MONTE CARLO SIMULATIONQ2

ADJUSTINGQ2

Abstract

We apply MONTE CARLO SIMULATION methods to estimate the simple Value-at-Risk (VaR-MC) as well as optimal or adjusted Value-at-Risk (VAR-OP) in daily collision insurance claims in Iran.In this paper, we randomize daily data of collision insurance claims in Iran. MONTE CARLO SIMULATION is used through an iterative procedure in considering adjusted processes to accommodate shocks.Adjusting is a process of reducing potential biases of VaR estimates. Coefficients from simple VaR and the adjusted VaR are compared. Depending on the times when loss exceeds VaR, the coefficient may increase or decrease the variance of claims and consequently causing VAR-OP to become smaller or larger than the simple VaR. Model validation was by back testing methods on the basis of unconditional covering in order to examine the accuracy of the model.Empirical validation shows that VaR estimation via the adjusted process is relatively reliable and appropriate. The results obtained by the simple VaR, underestimate the risks, it shows that the ADJUSTING coefficient is useful for reaching a better estimate of VaR within 99% confidence level.

Cites

DEVIATION FROM NORMAL DISTRIBUTION AND ITS IMPACT ON THE DIFFERENTIAL VALUE AT RISK

References

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APA: Copy

MAHDAVI, GHADIR, & SAMADI, MALIHE. (2012). THE APPLICATION OF VAR IN INSURANCE MARKET WITH MONTE CARLO SIMULATION (THE CASE OF COLLISION INSURANCE CLAIMS IN INSURANCE COMPANY). IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH), 27(1 (105)), 49-73. SID. https://sid.ir/paper/100915/en

Vancouver: Copy

MAHDAVI GHADIR, SAMADI MALIHE. THE APPLICATION OF VAR IN INSURANCE MARKET WITH MONTE CARLO SIMULATION (THE CASE OF COLLISION INSURANCE CLAIMS IN INSURANCE COMPANY). IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH)[Internet]. 2012;27(1 (105)):49-73. Available from: https://sid.ir/paper/100915/en

IEEE: Copy

GHADIR MAHDAVI, and MALIHE SAMADI, “THE APPLICATION OF VAR IN INSURANCE MARKET WITH MONTE CARLO SIMULATION (THE CASE OF COLLISION INSURANCE CLAIMS IN INSURANCE COMPANY),” IRANIAN JOURNAL OF INSURANCE RESEARCH (SANAAT-E-BIMEH), vol. 27, no. 1 (105), pp. 49–73, 2012, [Online]. Available: https://sid.ir/paper/100915/en

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