Risk capital allocation with autonomous subunits: the Lorenz set

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Risk capital allocation with autonomous subunits : the Lorenz set. / Hougaard, Jens Leth; Smilgins, Aleksandrs.

I: Insurance: Mathematics and Economics, Bind 67, 2016, s. 151–157.

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Harvard

Hougaard, JL & Smilgins, A 2016, 'Risk capital allocation with autonomous subunits: the Lorenz set', Insurance: Mathematics and Economics, bind 67, s. 151–157. https://doi.org/10.1016/j.insmatheco.2015.12.002

APA

Hougaard, J. L., & Smilgins, A. (2016). Risk capital allocation with autonomous subunits: the Lorenz set. Insurance: Mathematics and Economics, 67, 151–157. https://doi.org/10.1016/j.insmatheco.2015.12.002

Vancouver

Hougaard JL, Smilgins A. Risk capital allocation with autonomous subunits: the Lorenz set. Insurance: Mathematics and Economics. 2016;67:151–157. https://doi.org/10.1016/j.insmatheco.2015.12.002

Author

Hougaard, Jens Leth ; Smilgins, Aleksandrs. / Risk capital allocation with autonomous subunits : the Lorenz set. I: Insurance: Mathematics and Economics. 2016 ; Bind 67. s. 151–157.

Bibtex

@article{4cc180ef22f44ea0a3a96d142eea216c,
title = "Risk capital allocation with autonomous subunits: the Lorenz set",
abstract = "Risk capital allocation problems have been widely discussed in the academic literature. We consider a set of independent subunits collaborating in order to reduce risk: that is, when subunit portfolios are merged a diversification benefit arises and the risk of the group as a whole is smaller than the sum of the risks of the individual subunits. The question is how to allocate the risk capital of the group among the subunits in a fair way. In this paper we propose to use the Lorenz set as an allocation method. We show that the Lorenz set is operational and coherent. Moreover, we propose three fairness tests related directly to the problem of risk capital allocation and show that the Lorenz set satisfies all three tests in contrast to other well-known coherent methods. Finally, we discuss how to deal with non-uniqueness of the Lorenz set.",
author = "Hougaard, {Jens Leth} and Aleksandrs Smilgins",
year = "2016",
doi = "10.1016/j.insmatheco.2015.12.002",
language = "English",
volume = "67",
pages = "151–157",
journal = "Insurance: Mathematics and Economics",
issn = "0167-6687",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Risk capital allocation with autonomous subunits

T2 - the Lorenz set

AU - Hougaard, Jens Leth

AU - Smilgins, Aleksandrs

PY - 2016

Y1 - 2016

N2 - Risk capital allocation problems have been widely discussed in the academic literature. We consider a set of independent subunits collaborating in order to reduce risk: that is, when subunit portfolios are merged a diversification benefit arises and the risk of the group as a whole is smaller than the sum of the risks of the individual subunits. The question is how to allocate the risk capital of the group among the subunits in a fair way. In this paper we propose to use the Lorenz set as an allocation method. We show that the Lorenz set is operational and coherent. Moreover, we propose three fairness tests related directly to the problem of risk capital allocation and show that the Lorenz set satisfies all three tests in contrast to other well-known coherent methods. Finally, we discuss how to deal with non-uniqueness of the Lorenz set.

AB - Risk capital allocation problems have been widely discussed in the academic literature. We consider a set of independent subunits collaborating in order to reduce risk: that is, when subunit portfolios are merged a diversification benefit arises and the risk of the group as a whole is smaller than the sum of the risks of the individual subunits. The question is how to allocate the risk capital of the group among the subunits in a fair way. In this paper we propose to use the Lorenz set as an allocation method. We show that the Lorenz set is operational and coherent. Moreover, we propose three fairness tests related directly to the problem of risk capital allocation and show that the Lorenz set satisfies all three tests in contrast to other well-known coherent methods. Finally, we discuss how to deal with non-uniqueness of the Lorenz set.

U2 - 10.1016/j.insmatheco.2015.12.002

DO - 10.1016/j.insmatheco.2015.12.002

M3 - Journal article

VL - 67

SP - 151

EP - 157

JO - Insurance: Mathematics and Economics

JF - Insurance: Mathematics and Economics

SN - 0167-6687

ER -

ID: 155978827