@techreport{308cef9519214a86b751acd0bc33166f,
title = "Risk capital allocation: the Lorenz Set",
abstract = "Risk capital allocation problems have been widely discussed in the academic literature. We consider a company with multiple subunits having individual portfolios. Hence, when portfolios of subunits are merged, a diversification benefit arises: the risk of the company as a whole is smaller than the sum of the risks of the individual sub-units. The question is how to allocate the risk capital of the company 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 a set of new axioms related directly to the problem of risk capital allocation and show that the Lorenz set satisfies these new axioms 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 = "2014",
language = "English",
series = "MSAP Working Paper Series",
publisher = "Department of Food and Resource Economics, University of Copenhagen",
number = "03/2014",
type = "WorkingPaper",
institution = "Department of Food and Resource Economics, University of Copenhagen",
}