Next, we suppose that the guarantee programs do not need to hold risk capital individually; instead, the government holds a certain amount of risk capital for the programs as a group, also based on the 99 percent level TVaR. Therefore, the total amount of capital is
Under all four scenarios, we assume that risk capital is set at the 99 percent level TVaR, and that both the risk-free rate and the cost of capital rate are 2 percent per year.
The top panel of Table 1 reports the simulated capital and premium for each program and the total TVaR. The stand-alone scenario best matches current FCRA methods whereby each program is priced independently.
We further investigate the impact of the regime-switching effect, the physical characteristics effect, the PCA-climate index effect, and the [CO.sub.2] effect on CAT stop-loss reinsurance premiums and TVaR. The last section offers conclusions.
A more common measure adopted by reinsurers is expected shortfall or TVaR. TVaR measures the expected loss after the loss exceeds a given remote threshold.
We compute the expected value for the 1,000 extreme paths of total hurricane losses to obtain TVaR of hurricane risk based on 2-RPCM, LPCM, LPCM*, LPM*, and LM* in each year at the 1 percent significance level.
The former study examines the effects of fiscal policy shocks on output in Germany within linear VAR and non-linear TVAR (threshold vector autoregression) model.
TVAR model with two regimes appears to be the most appropriate option because it best fits the character of the business cycles--it clearly distinguishes between positive and negative output gap.
It can be shown (Wirch and Hardy, 1999) that the TVaR is a special case obtained by a bilinear distortion.
For the corresponding TVaR at level p of the loss [L.sub.ITM] the optimal strike is a solution to Equation (14) with