Stable Allocations of Risk

P. Csóka, P.J.J. Herings, L.Á. Kóczy

Research output: Contribution to journalArticleAcademicpeer-review

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, 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 involved in allocating risk.
Original languageEnglish
Pages (from-to)266-277
Number of pages11
JournalGames and Economic Behavior
Volume67
Issue number1
DOIs
Publication statusPublished - 1 Jan 2009

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