To split or not to split: Capital allocation with convex risk measures

Andreas Tsanakas

Insurance: Mathematics and Economics, 2009, vol. 44, issue 2, 268-277

Abstract: Convex risk measures were introduced by Deprez and Gerber [Deprez, O., Gerber, H.U., 1985. On convex principles of premium calculation. Insurance: Math. Econom. 4 (3), 179-189]. Here the problem of allocating risk capital to subportfolios is addressed, when convex risk measures are used. The Aumann-Shapley value is proposed as an appropriate allocation mechanism. Distortion-exponential measures are discussed extensively and explicit capital allocation formulas are obtained for the case that the risk measure belongs to this family. Finally the implications of capital allocation with a convex risk measure for the stability of portfolios are discussed. It is demonstrated that using a convex risk measure for capital allocation can produce an incentive for infinite fragmentation of portfolios.

Keywords: Convex; measures; of; risk; Capital; allocation; Aumann-Shapley; value; Inf-convolution (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (69)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-6687(08)00042-5
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:44:y:2009:i:2:p:268-277

Access Statistics for this article

Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().