A Method of Implementing Myers-Read Capital Allocation in Simulation

In this paper, we show an especially simple way to produce Myers-Read capital allocations in simulations, by using the Ruhm-Mango-Kreps (RMK) conditional risk algorithm. The algorithm uses only weighted averages. In particular, it does not require any calculus, even though the Myers-Read formula is a differential equation. This is possible because the Myers-Read method is additive, and the Ruhm-Mango theorem quarantees that any additive allocation method can be reproduced by RMK. While Myers-Read capital allocation is based on probability of ruin, the RMK algorithm can easily be adapted to alternative risk measurers of the user's choice.