Capital-Allocation-Induced Risk Sharing
Abstract
This article proposes a new class of risk-sharing rules by exploring the relationship between capital allocation and risk sharing. While the former is concerned with ex-ante allocating capitals to different lines of business within a corporation based on the relationship among the individual risks, often also through the aggregate risk, the latter is an arrangement which collects risks from and allocates them to, also ex-ante, a group of participants. Drawing on this analogy, we introduce a novel idea of inducing risk-sharing rules by randomizing existing capital allocation principles. Such an approach derives new risk-sharing rules complementing known results in the literature, which were largely based on economic principles and Pareto optimality.
Cite
@article{arxiv.2603.26491,
title = {Capital-Allocation-Induced Risk Sharing},
author = {Wing Fung Chong and Runhuan Feng and Kenneth Tsz Hin Ng},
journal= {arXiv preprint arXiv:2603.26491},
year = {2026}
}