Premium
Optimal Enterprise Risk Management and Decision Making With Shared and Dependent Risks
Author(s) -
Ai Jing,
Brockett Patrick L.,
Wang Tianyang
Publication year - 2017
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/jori.12140
Subject(s) - enterprise risk management , business , risk management , risk analysis (engineering) , industrial organization , finance
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 risk exposures that are shared and dependent across an intricate corporate structure. This article 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 multiperiod 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.