A capital allocation based on a solvency exchange option
نویسندگان
چکیده
In this paper we propose a new capital allocation method based on the idea of Sherris (2006). The proposed method explicitly accommodates the notion of limited liability of the shareholders and can further decompose the allocated capital, 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 argue that this axiom is not well aligned with the economic reality.
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