Financial undertakings often have to deal with liabilities of the form 'non-hedgeable claim size times value of a tradeable asset', e.g. foreign property insurance claims times fx rates. Which strategy to invest in the tradeable asset is risk minimal? We  expand the capital requirements based on value-at-risk and expected shortfall using perturbation techniques . We derive a stable and fairly model independent approximation of the risk minimal asset allocation in terms of the claim size distribution and the first three moments of asset return. The results enable a correct and easy-to-implement modularization of capital requirements into a market risk and a non-hedgeable risk component: the paper provides a stable expression for the financial benchmark against which the company's asset allocation must be measured to obtain the market risk component.
Financial undertakings often have to deal with liabilities of the form 'non-hedgeable claim size times value of a tradeable asset', e.g. foreign property insurance claims times fx rates. Which strategy to invest in the tradeable asset is risk minimal? We generalize the Gram-Charlier series for the sum of two dependent random variable, which allows us to expand the capital requirements based on value-at-risk and expected shortfall . We derive a stable and fairly model independent approximation of the risk minimal asset allocation in terms of the claim size distribution and the moments of asset return. The results enable a correct and easy-to-implement modularization of capital requirements into a market risk and a non-hedgeable risk component.
A
generalize the Gram-Charlier series for the sum of two dependent random variable, which allows us to
D
using perturbation techniques
D
first three
D
risk component: the paper provides a stable expression for the financial benchmark against which the company's asset allocation must be measured to obtain the market