Belles-Sampera, J.; Guillen, M.; Santolino, M. Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem. Mathematics2023, 11, 3846.
Belles-Sampera, J.; Guillen, M.; Santolino, M. Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem. Mathematics 2023, 11, 3846.
Belles-Sampera, J.; Guillen, M.; Santolino, M. Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem. Mathematics2023, 11, 3846.
Belles-Sampera, J.; Guillen, M.; Santolino, M. Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem. Mathematics 2023, 11, 3846.
Abstract
The capital allocation framework proposed by [] presents capital allocation principles as solutions to particular optimization problems and provides a general solution of the quadratic allocation problem via a geometric proof. However, the widely used haircut allocation principle is not reconcilable with that optimization setting. In this paper we provide an alternative proof of the quadratic allocation problem based on the Lagrange multipliers method to reach the general solution. We show that the haircut allocation principle can be accommodated to the optimization setting with the quadratic optimization criterion if one of the original conditions is relaxed. Two examples are provided to illustrate the accommodation of this allocation principle.
Keywords
capital allocation problem; risk management; optimization; haircut principle; risk sharing
Subject
Business, Economics and Management, Business and Management
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
