Related papers: Capital-Allocation-Induced Risk Sharing
In this paper we develop a novel methodology for estimation of risk capital allocation. The methodology is rooted in the theory of risk measures. We work within a general, but tractable class of law-invariant coherent risk measures, with a…
We consider the problem of optimally sharing a financial position among agents with potentially different reference risk measures. The problem is equivalent to computing the infimal convolution of the risk metrics and finding the so-called…
Capital allocation principles are used in various contexts in which a risk capital or a cost of an aggregate position has to be allocated among its constituent parts. We study capital allocation principles in a performance measurement…
Risk-sharing is one way to pool risks without the need for a third party. To ensure the attractiveness of such a system, the rule should be accepted and understood by all participants. A desirable risk-sharing rule should fulfill actuarial…
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…
We study optimal risk sharing among $n$ agents endowed with distortion risk measures. Our model includes market frictions that can either represent linear transaction costs or risk premia charged by a clearing house for the agents. Risk…
Given an initial resource allocation, where some agents may envy others or where a different distribution of resources might lead to higher social welfare, our goal is to improve the allocation without reassigning resources. We consider a…
We consider the problem of finding Pareto-optimal allocations of risk among finitely many agents. The associated individual risk measures are law invariant, but with respect to agent-dependent and potentially heterogeneous reference…
Despite the fact that the Euler allocation principle has been adopted by many financial institutions for their internal capital allocation process, a comprehensive description of Euler allocation seems still to be missing. We try to fill…
We study Pareto optimality in a decentralized peer-to-peer risk-sharing market where agents' preferences are represented by robust distortion risk measures that are not necessarily convex. We obtain a characterization of Pareto-optimal…
We consider the risk sharing problem for capital requirements induced by capital adequacy tests and security markets. The agents involved in the sharing procedure may be heterogeneous in that they apply varying capital adequacy tests and…
This paper studies the mathematical problem of allocating payouts (compensations) in an endowment contingency fund using a risk-sharing rule that satisfies full allocation. Besides the participants, an administrator manages the fund by…
Over the past decade alternatives to traditional insurance and banking have grown in popularity. The desire to encourage local participation has lead products such as peer-to-peer insurance, reciprocal contracts, and decentralized finance…
In this paper, making use of recent statistical physics techniques and models, we address the specific role of randomness in financial markets, both at the micro and the macro level. In particular, we review some recent results obtained…
We study two different contributions to the theory of (scalar) systemic risk measures. Namely the first aggregate or axiomatic approach and the first inject capital approach. For this purpose we establish a general framework, which is rich…
The minimization of some multivariate risk indicators may be used as an allocation method, as proposed in C\'enac et al. [6]. The aim of capital allocation is to choose a point in a simplex, according to a given criterion. In a previous…
Firms in inter-organizational networks such as supply chains or strategic alliances are exposed to interdependent risks. These are risks that are transferable across partner firms. They can be decomposed into intrinsic risks a firm faces…
We introduce a new paradigm for risk sharing that generalizes earlier models based on discrete agents and extends them to allow for sharing risk within a continuum of agents. Agents are represented by points of a measure space and have…
This paper studies decentralized risk-sharing on networks. In particular, we consider a model where agents are nodes in a given network structure. Agents directly connected by edges in the network are referred to as friends. We study…
The European insurance sector will soon be faced with the application of Solvency 2 regulation norms. It will create a real change in risk management practices. The ORSA approach of the second pillar makes the capital allocation an…