A Note on the Impossibility of Fair Risk Allocation

10 Pages Posted: 5 Oct 2012

See all articles by Péter Csóka

Péter Csóka

Corvinus University of Budapest; Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS)

Miklós Pintér

Corvinus University of Budapest

Date Written: August 31, 2012

Abstract

Measuring and allocating risk properly are crucial for performance evaluation and internal capital allocation of portfolios held by banks, insurance companies, investment funds and other entities subject to financial risk. We show that by using coherent measures of risk it is impossible to allocate risk satisfying the natural requirements of Stability, Symmetry and Incentive Compatibility. To obtain the result we characterize the Shapley value on the class of totally balanced games and also on the class of exact games. Our result can also be seen as a downside of coherent measures of risk.

Suggested Citation

Csóka, Péter and Pintér, Miklós, A Note on the Impossibility of Fair Risk Allocation (August 31, 2012). Available at SSRN: https://ssrn.com/abstract=2139368 or http://dx.doi.org/10.2139/ssrn.2139368

Péter Csóka (Contact Author)

Corvinus University of Budapest ( email )

Fővám tér 8.
Budapest, 1093
Hungary

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Tóth Kálmán utca 4.
Budapest, 1097
Hungary

Miklós Pintér

Corvinus University of Budapest ( email )

Hungary

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