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The authors study the risk capital allocation problem that arises when the total risk capital withheld by a firm needs to be divided over several portfolios within the firm. They propose to look at the Excess Based Allocation, which arises from lexicographically minimising the losses of all sets of portfolios in excess of their allocation. It has some desirable properties in common with an allocation rule from existing literature, the Aumann-Shapley value. The latter is the only stable allocation if they assume that portfolios are infinitely divisible as well as having a credible threat of splitting off and forming a new company without altering the distribution of their losses, which they deem not the case.
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