Using Aumann-Shapley Values to Allocate Insurance Risk

Michael Powers

North American Actuarial Journal, 2007, vol. 11, issue 3, 113-127

Abstract: The problem of allocating responsibility for risk among members of a portfolio arises in a variety of financial and risk-management contexts. Examples are particularly prominent in the insurance sector, where actuaries have long sought methods for distributing capital (net worth) across a number of distinct exposure units or accounts according to their relative contributions to the total “risk” of an insurer’s portfolio. Although substantial work has been done on this problem, no satisfactory solution has yet been presented for the case of inhomogeneous loss distributions— that is, losses X ∼ FX|λ such that FX|tλ (X) ≠ FtX|λ (X) for some t > 0. The purpose of this article is to show that the value-assignment method of nonatomic cooperative games proposed in 1974 by Aumann and Shapley may be used to solve risk-allocation problems involving losses of this type. This technique is illustrated by providing analytical solutions for a useful class of multivariatenormal loss distributions.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1080/10920277.2007.10597470 (text/html)
Access to full text is restricted to subscribers.

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:taf:uaajxx:v:11:y:2007:i:3:p:113-127

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uaaj20

DOI: 10.1080/10920277.2007.10597470

Access Statistics for this article

North American Actuarial Journal is currently edited by Kathryn Baker

More articles in North American Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().