A capital allocation based on a solvency exchange option
AbstractIn this paper we propose a new capital allocation method based on an idea of [Sherris, M., 2006. Solvency, capital allocation and fair rate of return in insurance. J. Risk Insurance 73 (1), 71-96]. The proposed method explicitly accommodates the notion of limited liability of the shareholders. We show how the allocated capital can be decomposed, so that each stakeholder can have a clearer understanding of their contribution. We also challenge the no undercut principle, one of the widely accepted allocation axioms, and assert that this axiom is merely a property that certain allocation methods may or may not meet.
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Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 44 (2009)
Issue (Month): 3 (June)
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Web page: http://www.elsevier.com/locate/inca/505554
Capital allocation Fair allocation axioms Solvency exchange option;
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[Methods of capital allocation and their characteristics in practice]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 619-632.
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"Risk Allocation under Liquidity Constraints,"
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- Peter Csoka & P. Jean-Jacques Herings, 2013. "Risk Allocation under Liquidity Constraints," IEHAS Discussion Papers 1331, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- Herings P.J.J. & Csóka P., 2013. "Risk allocation under liquidity constraints," Research Memorandum 057, Maastricht University, Graduate School of Business and Economics (GSBE).
- Csóka, Péter & Pintér, Miklós, 2010.
"On the impossibility of fair risk allocation,"
26515, University Library of Munich, Germany.
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"Excess based allocation of risk capital,"
Insurance: Mathematics and Economics,
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