The literature on capital allocation is biased towards an asset modeling framework rather than an actuarial framework … should be based on a Lévy process. It discusses the impact of different loss models on marginal capital allocations. It shows … that Lévy process-based models provide a better fit to the US statutory accounting data, and identifies how parameter risk …

a financial institution's economic capital. Based on a numerical simulation model, we provide concrete examples of how … granularity affects capital levels. We achieve this by following two simulation approaches, including a dynamic setup as a more … estimated amount of capital and account for it in their pricing. …

investments, we document an outperformance of 100 to 200 bps per year, even after we account for the leverage costs of 100 bps. We … believe our work will open up a new risk investing paradigm for those seeking long-term advantages. …