Optimal capital allocation based on the Tail Mean–Variance model

Maochao Xu and Tiantian Mao

Insurance: Mathematics and Economics, 2013, vol. 53, issue 3, 533-543

Abstract: This paper studies capital allocation problems with the aggregate risk exceeding a certain threshold. We propose a novel capital allocation rule based on the Tail Mean–Variance principle. General formulas for the optimal capital allocations are proposed. Explicit formulas for optimal capital allocations are derived for multivariate elliptical distributions. Moreover, we give asymptotic allocation formulas for multivariate regular variation variables. Various numerical examples are given to illustrate the results, and real insurance data is discussed as well.

Keywords: Capital allocation; Elliptical distribution; Mean–Variance; Multivariate regular variation; Quadratic distance (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:53:y:2013:i:3:p:533-543

DOI: 10.1016/j.insmatheco.2013.08.005

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