Mildenhall Section 3 Flashcards
Desirable Properties of Allocation
- Works at any level of granularity
- Decomposable (allocation to sum = sum of allocations)
- Computed with single, consistent formula
Considerations for Selecting an Allocation
Fair
Not overly tail-focused
Simple
Should address stakeholder concerns
Disadvantage of Allocated CCoC Pricing
Focuses too heavily on tail risk
Disadvantages of Shapley Allocation
-Computationally intensive for large number of units (2^n marginal impacts)
-If a unit is subdivided, ALL units must be recalculated
No Undercut Property
No unit allocated more than its standalone costs
Advantage of Marginal Business Euler Gradient Allocation
Only method suitable for measuring performance
can be confident that growing in LOB with larger RORAC will improve average return
Endogeneous vs Exogeneous
Endo = same measure for overall as for units
Exo = different measures for overall vs units
e.g. Proportional (Endo) vs Haircut (Exo)
