Abstract
In 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.
| Original language | English |
|---|---|
| Pages (from-to) | 357-366 |
| Number of pages | 10 |
| Journal | Insurance: Mathematics and Economics |
| Volume | 44 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2009 Jun 1 |
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All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Economics and Econometrics
- Statistics, Probability and Uncertainty
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A capital allocation based on a solvency exchange option. / Kim, Joseph H.T.; Hardy, Mary R.
In: Insurance: Mathematics and Economics, Vol. 44, No. 3, 01.06.2009, p. 357-366.Research output: Contribution to journal › Article
TY - JOUR
T1 - A capital allocation based on a solvency exchange option
AU - Kim, Joseph H.T.
AU - Hardy, Mary R.
PY - 2009/6/1
Y1 - 2009/6/1
N2 - In 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.
AB - In 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.
UR - http://www.scopus.com/inward/record.url?scp=65049088906&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=65049088906&partnerID=8YFLogxK
U2 - 10.1016/j.insmatheco.2008.11.006
DO - 10.1016/j.insmatheco.2008.11.006
M3 - Article
AN - SCOPUS:65049088906
VL - 44
SP - 357
EP - 366
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
SN - 0167-6687
IS - 3
ER -