Stable Allocations of Risk

20 Pages Posted: 28 May 2011

See all articles by P. Jean-Jacques Herings

P. Jean-Jacques Herings

Maastricht University

Péter Csóka

Corvinus University of Budapest; Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS)

Laszlo A. Koczy

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS); Quantitative Social and Management Sciences Research Group, Budapest University of Technology and Economics

Date Written: October 5, 2007

Abstract

The measurement and the allocation of risk are fundamental problems of portfolio management. Coherent measures of risk provide an axiomatic approach to the former problem. In an environment given by a coherent measure of risk and the various portfolios’ realization vectors, risk allocation games aim at solving the second problem: How to distribute the diversification benefits of the various portfolios? Understanding these cooperative games helps us to find stable, efficient, and fair allocations of risk.

We show that the class of risk allocation and totally balanced games coincide hence a stable allocation of risk is always possible. When the aggregate portfolio is riskless: risk is limited to subportfolios, the class of risk allocation games coincides with the class of exact games. As in exact games any subcoalition may be subject to marginalization even in core allocations, our result further emphasizes the responsibility in allocating risk.

Keywords: Coherent Measures of Risk, Risk Allocation Games, Totally Balanced Games, Exact Games

JEL Classification: C71, G10

Suggested Citation

Herings, P. Jean-Jacques and Csóka, Péter and Koczy, Laszlo A., Stable Allocations of Risk (October 5, 2007). Available at SSRN: https://ssrn.com/abstract=1853577 or http://dx.doi.org/10.2139/ssrn.1853577

P. Jean-Jacques Herings (Contact Author)

Maastricht University ( email )

Department of Economics
P.O. Box 616
6200 MD Maastricht
Netherlands
+31 43 3883636 (Phone)
+31 43 3884878 (Fax)

HOME PAGE: http://www.personeel.unimaas.nl/p.herings/herings.htm

Péter Csóka

Corvinus University of Budapest ( email )

Fővám tér 8.
Budapest, 1093
Hungary

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Tóth Kálmán utca 4.
Budapest, 1097
Hungary

Laszlo A. Koczy

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Budaörsi 45
Budapest, H-1112
Hungary

HOME PAGE: http://www.mtakti.hu/en/kutatok/laszlo-a-koczy/276/

Quantitative Social and Management Sciences Research Group, Budapest University of Technology and Economics ( email )

Magyar Tudósok krt. 2.
Budapest, 1117
Hungary

HOME PAGE: http://qsms.mokk.bme.hu/index.php/koczy/

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