# Insolvency

`kaal:entity:insolvency`

**Status.** derived

This node is assembled mechanically from the 3 claims that carry the concept tag `insolvency`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself.

## Every claim under this term

3 claims across 1 works, 2019 to 2019.

**2019**

- [3396542-021](https://wulfkaal.github.io/claims/3396542-021) [condition/argued] *(failure mode)* -- The DAO is insolvent when the present value of expected cash flows from new policies falls below the expected cash outflow on currently outstanding policies, and in that state the value of a token is negative.
  > The DAO will be insolvent if the value of the DAO becomes negative - in other words, if the Present Value (PV) of expected cash flows from new policies is less than the expected cash outflow from currently outstanding (old) policies. If the DAO is insolvent, the value of a token will be negative.
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542
- [3396542-022](https://wulfkaal.github.io/claims/3396542-022) [failure/argued] *(failure mode)* -- A sufficiently large negative shock to the number of policies issued per period drives the value of the DAO negative and renders the DAO insolvent, so falling new business volume is a principal insolvency channel.
  > Thus, if ε0 is sufficiently negative and large in magnitude (i.e., if there is a sufficiently large decrease in M), then the value of DAO will become negative and the DAO will become insolvent.
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542
- [3396542-023](https://wulfkaal.github.io/claims/3396542-023) [failure/argued] *(failure mode)* -- Raising the margin is the available remedy for an insolvency shock, but it is not a clean fix because the effect of a higher margin on future demand must itself be considered.
  > Of course, a remedial course of action that could perhaps be taken in period 0 is to increase the margin m if that is possible. However, we would need to consider the impact of an increase in the margin on future demand.
  Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Decentralized Underwriting (2019). SSRN: https://ssrn.com/abstract=3396542

## Verify

Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust.

    curl -s https://wulfkaal.github.io/entities/insolvency.md | sha256sum

**Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.