Capital allocation
Summary of topic
This page discusses the topic of capital allocation, including both the why we should (or shouldn't) allocate capital, and also how we should allocate capital for various purposes.
Those working on the topic
Richard Holloway - Richard.Holloway@Kilnplc.com
Getting started
This paper is probably as good an overall summary as I have found.
Our findings to date
Key papers include
Myers-Read which is quoted in most later papers
Don Mango's paper and presentation which is similar to the one presented at the 2005 Giro. This includes some novel ideas, but has a very logical approach.
There are also a long list of questions (see below)
If you would like to comment please update this wiki page in the comments section; if appropriate these will be merged in with the main text in due course.
Comments
The following are my key questions
What is the capital allocation actually used for?
Does the allocation only look at the events in the extreme tail (0.5%)?
How far does the allocation go (business unit, business line, or individual policy)?
Does the sum of the capital equal the ICA naturally or is it forced?
Does the allocation tend to be stable over time?
How do you deal with the allocation of capital from multi period ICA models?
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