Dhaene, Jan and Tsanakas, Andreas and Emiliano, Valdez and Steven, Vanduffel (2009): Optimal capital allocation principles.

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Abstract
This paper develops a unifying framework for allocating the aggregate capital of a financial firm to its business units. The approach relies on an optimisation argument, requiring that the weighted sum of measures for the deviations of the business unit’s losses from their respective allocated capitals be minimised. This enables the association of alternative allocation rules to specific decision criteria and thus provides the risk manager with flexibility to meet specific target objectives. The underlying general framework reproduces many capital allocation methods that have appeared in the literature and allows for several possible extensions. An application to an insurance market with policyholder protection is additionally provided as an illustration.
Item Type:  MPRA Paper 

Original Title:  Optimal capital allocation principles 
Language:  English 
Keywords:  Capital allocation; risk measure; comonotonicity; Euler allocation; default option; Lloyd’s of London 
Subjects:  G  Financial Economics > G0  General > G00  General G  Financial Economics > G2  Financial Institutions and Services > G20  General 
Item ID:  13574 
Depositing User:  Emiliano Valdez 
Date Deposited:  22 Feb 2009 02:00 
Last Modified:  27 Sep 2019 17:43 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/13574 