A Note on the Impossibility of Fair Risk Allocation
10 Pages Posted: 5 Oct 2012
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: 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
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