Steven Vanduffel, professor in Finance and Insurance at the Vrije Universiteit Brussel, has been awarded the American Risk and Insurance Association’s Robert I. Mehr Award, together with co-authors Jan Dhaene, Andreas Tsanakas, and Emiliano Valdez. Professor Vanduffel received the award for the article “Optimal Capital Allocation Principles”, published in 2012 in the Journal of Risk and Insurance. The Robert I. Mehr Award is granted each year to the author(s) of a paper published 10 years previously that has best stood the test of time.
The article develops a unifying framework for allocating the aggregate capital of a financial firm to its business units. The approach relies on an optimization argument, requiring that the weighted sum of measures for the deviations of the business unit’s losses from their respective allocated capitals be minimized. The approach is fair insofar as it requires capital to be close to the risk that necessitates holding it, and it is very flexible in the sense that different forms of the objective function can reflect alternative definitions of corporate risk tolerance. Owing to this flexibility, the general framework reproduces several capital allocation methods that appear in the literature and allows for alternative interpretations and possible extensions.
The Robert I. Mehr Award is the American Risk and Insurance Association’s top prize for the paper published in the Journal of Risk and Insurance ten years ago that has best stood the test of time. The procedure to identify the winning article is as follows: The articles published in the Journal of Risk and Insurance ten years previously are compiled, and the titles, abstracts, and social science citation index numbers are sent to the associate editors of the Journal of Risk and Insurance. The associate editors vote on the article that they believe best satisfied the criteria.
The award will be presented at the 2022 Annual Meeting in Long Beach, California, from July 31 to August 3.