Value-at-Risk, Tail Value-at-Risk and upper tail transform of the sum of two counter-monotonic random variables

Abstract

ABSTRACT The Value-at-Risk (VaR) of comonotonic sums can be decomposed into marginal VaRs at the same level. This additivity property allows to derive useful decompositions for other risk measures. In particular, the Tail Value-at-Risk (TVaR) and the upper tail transform of comonotonic sums can be written as the sum of their corresponding marginal risk measures. The other extreme dependence situation, involving the sum of two arbitrary counter-monotonic random variables, presents a certain number of challenges. One of them is that it is not straightforward to express the VaR of a counter-monotonic sum in terms of the VaRs of the marginal components of the sum. This paper generalizes the results derived in [Chaoubi, I., Cossette, H., Gadoury, S.-P. & Marceau, E. (2020). On sums of two counter-monotonic risks. Insurance: Mathematics and Economics 92, 47–60.] by providing decomposition formulas for the VaR, TVaR and the stop-loss transform of the sum of two arbitrary counter-monotonic random variables.