Allocation of Portfolio Risk and Outside Options: Which is the Best Coalition Structure Value to Solve the Low-Risk Anomaly?

Tobias Hiller ()
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Tobias Hiller: Department of Microeconomics, University Leipzig, Leipzig, Germany

International Game Theory Review (IGTR), 2024, vol. 26, issue 01, 1-13

Abstract: In this paper, we enhance the application of coalition structure (CS) games to the distribution of portfolio risk across individual assets in a portfolio. In a recent paper, CS games were applied for the first time as a risk measure that takes into account the contributions of individual assets to portfolio risk and contributions to the risk of the stock market as a whole. We enhance this approach by using five values for CS games in a simulation study. In this simulation, it can be shown that using CS games has an even higher potential to solve the so-called low-risk puzzle than shown in previous literature.

Keywords: Low-risk puzzle; portfolio risk; cooperative game theory; CS games; χ value; proportional value; Wiese value (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0219198923500172

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