Stable Allocations of Risk

Csóka Péter, P. Jean-Jacques Herings () and László Á. Kóczy ()

No 40, Research Memoranda from Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization

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: microeconomics (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2007
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Related works:
Working Paper: Stable Allocations of Risk (2008)
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