A capital allocation based on a solvency exchange option

Joseph H.T. Kim, Mary R. Hardy

Research output: Contribution to journalArticle

13 Citations (Scopus)

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 languageEnglish
Pages (from-to)357-366
Number of pages10
JournalInsurance: Mathematics and Economics
Volume44
Issue number3
DOIs
Publication statusPublished - 2009 Jun 1

Fingerprint

Insurance
Axiom
Axioms
Solvency
Exchange option
Capital allocation
Stakeholders
Rate of return
Insurance risk
Shareholders
Limited liability

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

@article{61bcd01795a44de6ae068326807e9f75,
title = "A capital allocation based on a solvency exchange option",
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.",
author = "Kim, {Joseph H.T.} and Hardy, {Mary R.}",
year = "2009",
month = "6",
day = "1",
doi = "10.1016/j.insmatheco.2008.11.006",
language = "English",
volume = "44",
pages = "357--366",
journal = "Insurance: Mathematics and Economics",
issn = "0167-6687",
publisher = "Elsevier",
number = "3",

}

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 journalArticle

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 -