Properties and comparison of risk capital allocation methods
| Autor: | Dóra Balog, Péter Csóka, Tamás László Bátyi, Miklós Pintér |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
021103 operations research
Information Systems and Management Actuarial science General Computer Science Economic capital Financial risk 05 social sciences Risk-adjusted return on capital 0211 other engineering and technologies Diversification (finance) Financial risk management 02 engineering and technology Management Science and Operations Research Industrial and Manufacturing Engineering Cost of capital Modeling and Simulation 0502 economics and business Econometrics Economics Portfolio 050207 economics Value at risk |
| Zdroj: | European Journal of Operational Research. 259:614-625 |
| ISSN: | 0377-2217 |
| Popis: | If a financial unit (a bank, an insurance company, a portfolio, the financial system of a country, etc.) consists of subunits (divisions, subportfolios, etc.), then the risk of the main unit should be allocated to the subunits using a risk capital allocation method in a fair way. We analyze seven methods widely discussed in the literature or used in practice (Activity based, Beta, Incremental, Cost gap, Marginal Risk Contribution, Shapley, and Nucleolus) in terms of ten reasonable fairness properties (Full Domain, Core Compatibility, Diversification, Strong Monotonicity, Incentive Compatibility Efficiency, Equal Treatment Property, Riskless Portfolio, Covariance, and Decomposition Invariance). We provide proofs or counterexamples for each method and the ten properties that we consider. We also computed how often on average Core Compatibility is satisfied in randomly generated risk capital allocation situations up to nine subunits in 24 treatments for all methods that do not satisfy Core Compatibility. We believe that through the descriptions of the examined methods our paper can serve as a useful guide for both practitioners and researchers. |
| Databáze: | OpenAIRE |
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