In this paper we propose a new rule to allocate risk capital to portfolios or divisions within a firm. Specifically, we determine the capital allocation that minimizes the excesses of sets of portfolios in lexicographical sense. The excess of a set of portfolios is defined as the expected loss...

In this paper we propose a new rule to allocate risk capital to portfolios or divisions within a firm. Specifically, we determine the capital allocation that minimizes the excesses of sets of portfolios in lexicographical sense. The excess of a set of portfolios is defined as the expected loss...

In this article, we extend the application of cooperative game theory to the so-called low-risk puzzle. Specifically, we apply concepts that consider hierarchies on the assets in the allocation of portfolio risk. These hierarchies have not previously been considered in portfolio risk allocation...

Existing literature regarding the natural hedge potential that arises from combining liabilities with different sensitivities focuses on the optimal liability mix, but does not address the question whether and how changes in the liability mix can be obtained. In the absence of a well-functioning...

We introduce a family of Capital allocation rules (C.A.R) based on the dual representation for risk measures and inspired to the Aumann-Shapley allocation principle. These rules extend the one of Denault and Kalkbrener (for coherent risk measures) and the one of Tsanakas (convex case), to the...

This paper introduces the family of Weighted Aumann-Shapley values for piecewise linear fuzzy games. The regular Aumann-Shapley value is not well-defined in case some differentiability condition is not satisfied. As an alternative, we introduce a family of allocation rules inspired by the...

This paper studies the portfolio choice of two large investors who act strategically because their trading affects expected stock returns. Each investor chooses her optimal portfolio conditional on the portfolio of the opponent. Equilibrium portfolios and their performance depend on the...

We analyze the optimal allocation of trades to portfolios when the cost associated with an allocation is proportional to each portfolio's risk. Our investigation is motivated by changes in the over-the-counter derivatives markets, under which some contracts may be traded bilaterally or through...

Risk allocation games are cooperative games that are used to attribute the risk of a financial entity to its divisions. In this paper, we extend the literature on risk allocation games by incorporating liquidity considerations. A liquidity policy specifies state-dependent liquidity requirements...

We consider financial networks where agents are linked to each other via mutual liabilities. In case of bankruptcy, there are potentially many bankruptcy rules, ways to distribute the assets of a bankrupt agent over the other agents. One common approach is to first apply pairwise netting of...