Capital Allocation Rules and Generalized Collapse to the Mean: Theory and Practice

Francesca Centrone and Emanuela Rosazza Gianin ()
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Francesca Centrone: Department of Economics and Business Studies, University of Eastern Piedmont, 28100 Novara, Italy
Emanuela Rosazza Gianin: Department of Statistics and Quantitative Methods, University of Milano-Bicocca, 20126 Milano, Italy

Mathematics, 2025, vol. 13, issue 6, 1-14

Abstract: In this paper, we focus on capital allocation methods based on marginal contributions. In particular, concerning the relation between linear capital allocation rules and the well-known Gradient (or Euler) allocation, we investigate an extension to the convex and non-differentiable case of the result above and its link with the “generalized collapse to the mean” problem. This preliminary result goes in the direction of applying the popular marginal contribution method, which fosters the diversification of risk, to the case of more general risk measures. In this context, we will also discuss and point out some numerical issues linked to marginal methods and some future research directions.

Keywords: risk management; capital allocation; risk measures; actuarial sciences; Euler method (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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