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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. The approach is fair insofar as it(More)
The Aumann–Shapley [Values of Non-atomic Games, Princeton University Press, Princeton] value, originating in cooperative game theory, is used for the allocation of risk capital to portfolios of pooled liabilities, as proposed by Denault [Coherent allocation of risk capital, J. Risk 4 (1) (2001) 1]. We obtain an explicit formula for the Aumann–Shapley value,(More)
For solvency purposes insurance companies need to calculate so-called best-estimate reserves for outstanding loss liability cash flows and a corresponding risk margin for non-hedgeable insurance-technical risks in these cash flows. In actuarial practice, the calculation of the risk margin is often not based on a sound model but various simplified methods(More)
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