STOCHASTIC MODEL AND RISK MEASURE BASED ON MOMENT

• Main Author: MAULIZA (NIM: 10114084), MUNA
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/29398
• Institution: Institut Teknologi Bandung

Financial risk is a loss that can happen to the goods or someone’s life. One of the important activities in managing financial risk is insurance. In insurance, the policyholder can transfer the financial risk to the insurance company. Insurance companies also have a financial risk of paying claims. There are two important things in claim payments: claim frequency and claim severity (amounts). In particular, claim amounts will be studied more. Claim amounts ' (losses') behaviors are dynamic and have nonnegative value. These behaviors can be accomodated by stochastic model based on moment, Exponential Family Autoregressive Conditional Amount (EFACA). Insurance companies also need to predict the risk to understand the effect of risk in determining the companies' reserves. Risk prediction can be done by minimizing the weighted moment and determining the conditional first order moment directly. In predicting risk, an error may occur, so accuracy test of risk prediction results is required. Accuracy test can be done by back-testing method based on moment (GMM test). This test will examine the suitability of the moment of model and the risk prediction results.