Optimal enterprise risk management and decision making with shared and dependent risks
Date
2016-05-25
Authors
Ai, Jing, author
Brockett, Patrick L., author
Wang, Tianyang, author
The Journal of Risk and Insurance, publisher
Journal Title
Journal ISSN
Volume Title
Abstract
Dynamic enterprise risk management (ERM) entails holistic decision-making for critical corporate functions such as capital budgeting and risk management. The interplay across business divisions, however, is complicated due to their natural interactions through the shared and dependent risk exposures within an intricate corporate structure. This paper develops an integrated optimization framework via a copula-based decision tree interface to facilitate ERM decision making to meet the specified enterprise goal in a multi-period setting. We illustrate our model and provide managerial insights with a case study for a financial services company engaged in both banking and insurance businesses.
Description
Includes bibliographical references (pages 27-29).
Published as: Journal of Risk and Insurance, vol. 84, no. 4, December 2017, pp. 1127–1169. https://doi.org/10.1111/jori.12140.
Published as: Journal of Risk and Insurance, vol. 84, no. 4, December 2017, pp. 1127–1169. https://doi.org/10.1111/jori.12140.
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Subject
enterprise risk management (ERM)
capital budgeting
risk dependency
copula modeling
decisions under uncertainty