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Tedypendah
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Joined: May 26th, 2013, 10:11 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

March 28th, 2015, 10:40 am

Hi all,I am busy with an exercise as part of building an Economic Capital model at an Insurance Company. Suppose I quantify my Lapse risk to be 2000, can someone confirm if I am right in assuming a normal distribution for the Lapse risk here. I think I read that one of the assumptions underlying the Solvency II standard formula is normality for individual risks but I can't seem to locate where I read it. 1) Is it enough to assume normality of individual risks when they are aggregated using a correlation matrix which means that a correlation matrix implies Pearson's rho? 2) Can we have a correlation matrix made up of Kendall's Tau?
Last edited by Tedypendah on March 29th, 2015, 10:00 pm, edited 1 time in total.
 
User avatar
Tedypendah
Topic Author
Posts: 147
Joined: May 26th, 2013, 10:11 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

March 30th, 2015, 11:43 am

Quants please help, I know you know the answer. I'm an Actuary who is clueless here, see questions 1 and 2 Daveangel?
Last edited by Tedypendah on March 29th, 2015, 10:00 pm, edited 1 time in total.
 
User avatar
Tedypendah
Topic Author
Posts: 147
Joined: May 26th, 2013, 10:11 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

April 2nd, 2015, 2:03 pm

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Samsaveel
Posts: 436
Joined: April 20th, 2008, 5:47 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

April 2nd, 2015, 2:41 pm

correlation is a linear measure of dependence,implicit assumption is normality.
 
User avatar
Tedypendah
Topic Author
Posts: 147
Joined: May 26th, 2013, 10:11 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

April 2nd, 2015, 3:37 pm

Thanks Samsaveel, but Kendall's Tau is also correlation (rank)...im really confused. Or did you mean to say correlation matrix implies linear correlation i.e we can't use Kendall's Tau in a correlation matrix?
 
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Samsaveel
Posts: 436
Joined: April 20th, 2008, 5:47 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

April 3rd, 2015, 3:54 am

linear correlation is very confusing !it is used everywhere in finance , it only makes sense if the underlying RV ( Bivariate , Multivariate)are normal,or more generallycome from the elliptical world ,send me a pm ,will dig up a good paper that goes into details.
 
User avatar
Tedypendah
Topic Author
Posts: 147
Joined: May 26th, 2013, 10:11 am

Does the Solvency II correlation matrix (or any other correlation matrix) imply Pearsn's rho and hence normality?

April 3rd, 2015, 4:48 am

Thanks a lot Sam, will pm you.
Last edited by Tedypendah on April 2nd, 2015, 10:00 pm, edited 1 time in total.
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