Risk‐Based Capital Allocation Using a Coherent Measure of Risk
This article outlines a procedure for quantifying risk‐adjusted capital reserves that may be used for both performance evaluation and capital allocation. The author identifies and quantifies the sources of risk capital that must be addressed, to cover current investment and withstand market shocks, for any business line that exhibits earnings volatility. The author classifies risk capital into two types: market‐risk capital and earnings volatility‐related capital. Market risk capital may be divided into two categories; risks due to “normal” or “diffusion” type price movements and catastrophic moves or “stress” events. In contrast, earnings volatility‐related capital is directly related to the firm's equity‐at‐risk, in the event that market shocks lead to sustained earnings volatility. The author suggests that these risk‐adjusted capital measures may be used as a benchmark, in conjunction with net earnings, to evaluate performance, or to allocate equity capital across different operations within a firm.
Measuring Investment Risk
LESLIE A. BALZER is manager of investment technologyfor Lend Lease Corporate Services Limited in Sydney, Australia. He was previously a principal of consulting actuaries William M. Mercer, and dean ofengineering at the Royal Melbourne Institute of Technology. Dr. Balzer holds a B.E. in mechanical engineering and a B.Sc. in mathematics and physicsfrom the University of New South Wales, Australia. In addition, he holds a Ph.D. from the Control and Management Systems Division of the University of Cambridge, England. Dr. Balzeer is a fellow of a number ofprofessional societies, and is vice president of the QGroup (Australia) and chairman ofits mrking Patty on Investment Risk.
Hobbes and the Reception of Leviathan
Although there has been much discussion of the reception of Hobbes’s work, Hobbes’s response to his own reception has rarely received much consideration. This article looks at Hobbes’s engagements with his critics. Far from being rearguard actions by a philosopher under siege, or disingenuous attempts to curry favour with those in power, they can be read as moments when Hobbes in fact sought to convert what he saw as the “truth of speculation into the utility of practice.”