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Capital allocation based on the Tail Covariance Premium Adjusted
Institution:1. Physics Department, Faculty of Science, Northern Border University, Arar, Saudi Arabia;2. Chemistry Department, Faculty of Science, Northern Border University, 13211 Arar, Saudi Arabia;3. Chemistry Department, Faculty of Science, New Valley University, 72511, Al-Wadi Al-Gadid, Al-Kharga, Egypt;4. Chemical and Materials Engineering Department, King Abdulaziz University, Rabigh 21911, Saudi Arabia;5. Chemistry Department, Faculty of Science, 23 December Street, 42521, Port-Said University, Port-Said, Egypt;1. Department of Mathematics, Faculty of Science and Arts, Ordu University, Ordu, Turkey;2. Department of Mathematics, Faculty of Technical Science, University “Ismail Qemali”, Vlora, Albania
Abstract:The current Solvency II process makes risk capital allocation to different business lines more and more important. This paper considers two business lines with the exponential loss distributions linked by a Farlie–Gumbel–Morgenstern (FGM) copula, modelling the dependence between them. As an allocation principle we use the Tail Covariance Premium Adjusted and obtain expressions for the allocation to the two business lines.
Keywords:Tail Covariance Premium Adjusted  Risk measures  Capital allocation  Dependence  Insurance
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