Seminar explores a New One-Step Approach for Optimizing Capital Reserves

On 5 November 2024, the School of Mathematics and Physics at Xi'an Jiaotong-Liverpool University invited Prof. Jun Cai to deliver a research seminar titled “A One-Step Approach for Determining the Optimal Aggregate Capital Reserve and Allocation.” Dr. Jun Cai is a professor in the Department of Statistics and Actuarial Science at the University of Waterloo, Canada. His research interests encompass actuarial science, applied probability, mathematical finance, and operations research.

He currently focuses on quantitative risk management in insurance and finance, including insurance decision problems, dependence modelling, and risk analysis with model uncertainty. His work has been published in top journals, and he was awarded the 2020 International Actuarial Association（IAA） Bob Alting von Geusau Prize, in addition to serving as an associate editor for Insurance: Mathematics and Economics.

In the lecture, Prof. Jun Cai delved into the regulatory standards for capital requirements in financial and insurance companies and optimization methods. He introduced an innovative one-step approach that simultaneously optimizes both the aggregate capital reserve and the allocation scheme. This method enhances the decision-making process by minimizing an expected loss or cost function that incorporates aggregate and individual risks, making the process more efficient and rational.

Prof. Cai also analysed existing capital requirements standards, such as VaR and CTE, and allocation methods based on these standards. Using quantitative arguments, he explained how the one-step optimization approach meets safety and budget requirements. Additionally, numerical examples were presented to compare the new approach with traditional methods, further demonstrating its advantages.

The research seminar was hosted by Prof. Hailiang Yang. Prof. Jun Cai's presentation provided fresh perspectives and practical insights into capital allocation and distribution, offering profound implications for risk management and decision-making. It provides an opportunity for XIPUer to exchange dialogues on their learning in Financial & Actuarial.

By Zhen Ma

Edited by Qinru Liu