Transcription of A Note on Capital Allocation by Percentile Layer
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A Note on Capital Allocation by Percentile Layer
A Note on Capital Allocation by Percentile LayerLiang HONG, PhD, FSA1 AbstractCapital Allocation by Percentile Layer is a relatively new method. It can generatedifferent Capital Allocation than other popular methods such as Co-VaR, AlternativeCoVaR and CoTVAR. We compare these four methods formally. We find that capitalallocation by Percentile layers does not always assign Capital in the most reasonable particular, we demonstrate that the advantage of Capital Allocation by percentilelayer depends on the target VaR. Thus, it is not always the right Capital allocationmethod. The results of this paper will help actuaries and other financial risk analyststo make judicious choices between these Classi cation:G22, G31;Keywords: Capital Allocation ; Percentile Layer ; Co-VaR; Alternative CoVaR; CoTVaR;VaR-dependence1 Liang Hong is Fellow of Society of Actuaries (SOA) and Assistant Professor of Mathematics &Actuarial Science in the Department of Mathematics, Bradley Uni
A Note on Capital Allocation by Percentile Layer Liang HONG, PhD, FSA 1 Abstract Capital allocation by percentile layer is a relatively new method.
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