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University of St. Gallen

Prof. Dr. Markus Huggenberger
Research Area Risk Management and Asset Pricing

Markus Huggenberger is an Assistant Professor of Risk Management and Insurance at the University of St. Gallen (HSG). Before joining HSG, Markus worked as an Assistant Professor at the University of Mannheim, where he also obtained his doctoral degree. Markus holds diplomas in Business Administration and Mathematics.

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Research Focus

Markus is interested in quantitative risk management, insurance, and asset pricing. His work explores new techniques for managing and pricing the risk of extreme events. Furthermore, Markus studies the benefits of risk sharing in insurance and the design of solvency regulation.

His recent research is focused on the following areas:

  • the interaction of risk pooling and insurance regulation
  • new ideas for capital requirements in insurance
  • measurement and management of market tail risk
  • pricing of tail risk in the cross section of stock returns
  • exploiting the forward-looking information in option prices for risk management

Publications

We investigate the benefits of risk pooling for the policyholders of stock insurance companies under different solvency standards. Using second-degree stochastic dominance, we document that the utility of risk-averse policyholders is increasing in the pool size if the equity capital is proportional to the premiums written. To the contrary, an increase in the pool size can reduce the policyholders' utility if the equity capital is determined using the Value-at-Risk (VaR). We show that pooling with a larger number of risks is also beneficial for all risk-averse policyholders under a VaR-based regulation if the pool satisfies an excess tail risk restriction. Our analysis provides new insights for the design of solvency standards and reveals a potential disadvantage of risk-based capital requirements for policyholders.

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This paper investigates whether multivariate crash risk (MCRASH), defined as exposure to extreme realizations of multiple systematic factors, is priced in the cross-section of expected stock returns. We derive an extended linear model with a positive premium for MCRASH, and we empirically confirm that stocks with high MCRASH earn significantly higher future returns than stocks with low MCRASH. The premium is not explained by linear factor exposures, alternative downside risk measures, or stock characteristics. Extending market-based definitions of crash risk to other well-established factors helps to determine the cross-section of expected stock returns without further expanding the factor zoo.

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The essence of mutual insurance is the notion that re-distributing risk in a pool of risks is more beneficial than taking the risk alone. Interpreting ‘more beneficial’ as an increase in utility and considering sequences of exchangeable risks, we are able to formalize this notion from the policyholder’s perspective and demonstrate its validity for various alternative preference functionals (e.g., expected utility, Choquet expected utility, and distortion risk measures). To obtain this result, we exploit that for a sequence of exchangeable risks the corresponding sequence of arithmetical averages is a reversed martingale. We conclude that pooling risks is fundamental for understanding the mechanisms of insurance because it favourably affects the utility of policyholders, and we refer to this phenomenon as the ‘utility-improving effect of risk pooling’. Moreover, we demonstrate that the utility of the policyholder is (strictly) increasing with the size of the risk pool

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phone Your contact person

Institute of Insurance Economics
at the University of St.Gallen (I.VW)

Prof. Dr. Markus Huggenberger
Tannenstrasse 19
9000 St.Gallen
+41 71 224 7962

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