Tsanakas, A. (2007). To split or not to split: Capital allocation with convex risk measures (Report No. Actuarial Research Paper No. 184). London, UK: Faculty of Actuarial Science & Insurance, City University London.
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Convex risk measures were introduced by Deprez and Gerber (1985). Here the problem of allocating risk capital to subportfolios is addressed, when aggregate capital is calculated by a convex risk measure. The Aumann-Shapley value is proposed as an appropriate allocation mechanism. Distortion-exponential measures are discussed extensively and explicit capital allocation formulas are obtained for the case that the risk measure belongs to this family. Finally the implications of capital allocation with a convex risk measure for the stability of portfolios are discussed.
|Item Type:||Monograph (Working Paper)|
|Uncontrolled Keywords:||Convex measures of risk, capital allocation, Aumann-Shapley value, inf-convolution|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Cass Business School > Faculty of Actuarial Science & Insurance > Faculty of Actuarial Science & Insurance Actuarial Research Reports|
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