Balog, Dóra and Bátyi, Tamás László and Csóka, Péter and Pintér, Miklós (2014) Properties of risk capital allocation methods: Core Compatibility, Equal Treatment Property and Strong Monotonicity. Working Paper. Corvinus University of Budapest Faculty of Economics, Budapest.
|
PDF
- Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
589kB |
Abstract
In finance risk capital allocation raises important questions both from theoretical and practical points of view. How to share risk of a portfolio among its subportfolios? How to reserve capital in order to hedge existing risk and how to assign this to different business units? We use an axiomatic approach to examine risk capital allocation, that is we call for fundamental properties of the methods. Our starting point is Csóka and Pintér (2011) who show by generalizing Young (1985)'s axiomatization of the Shapley value that the requirements of Core Compatibility, Equal Treatment Property and Strong Monotonicity are irreconcilable given that risk is quantified by a coherent measure of risk. In this paper we look at these requirements using analytic and simulations tools. We examine allocation methods used in practice and also ones which are theoretically interesting. Our main result is that the problem raised by Csóka and Pintér (2011) is indeed relevant in practical applications, that is it is not only a theoretical problem. We also believe that through the characterizations of the examined methods our paper can serve as a useful guide for practitioners.
Item Type: | Monograph (Working Paper) |
---|---|
Series Name: | Corvinus Economics Working Papers - CEWP |
Series Number / Identification Number: | 2014/13 |
Uncontrolled Keywords: | Coherent Measures of Risk, Risk Capital Allocation, Shapley value, Core, Simulation |
JEL classification: | C71 - Cooperative Games G10 - General Financial Markets: General (includes Measurement and Data) |
Divisions: | Faculty of Business Administration > Institute of Finance and Accounting > Department of Finance |
Subjects: | Mathematics, Econometrics |
Funders: | János Bolyai Research Scholarship of the Hungarian Academy of Sciences |
Projects: | MTA-BCE "Lendület" Strategic Interactions Research Group, HAS LP-004/2010, OTKA PD 105859, OTKA K 101224 |
References: | |
ID Code: | 1659 |
Deposited By: | Ádám Hoffmann |
Deposited On: | 29 Jul 2014 14:13 |
Last Modified: | 29 Jul 2014 14:13 |
Repository Staff Only: item control page