In:
Operations Research, Institute for Operations Research and the Management Sciences (INFORMS), Vol. 66, No. 4 ( 2018-08), p. 936-949
Abstract:
We address the problem of risk sharing among agents using a two-parameter class of quantile-based risk measures, the so-called range-value-at-risk (RVaR), as their preferences. The family of RVaR includes the value-at-risk (VaR) and the expected shortfall (ES), the two popular and competing regulatory risk measures, as special cases. We first establish an inequality for RVaR-based risk aggregation, showing that RVaR satisfies a special form of subadditivity. Then, the Pareto-optimal risk sharing problem is solved through explicit construction. To study risk sharing in a competitive market, an Arrow–Debreu equilibrium is established for some simple yet natural settings. Furthermore, we investigate the problem of model uncertainty in risk sharing and show that, in general, a robust optimal allocation exists if and only if none of the underlying risk measures is a VaR. Practical implications of our main results for risk management and policy makers are discussed, and several novel advantages of ES over VaR from the perspective of a regulator are thereby revealed. The e-companion is available at https://doi.org/10.1287/opre.2017.1716 .
Type of Medium:
Online Resource
ISSN:
0030-364X
,
1526-5463
DOI:
10.1287/opre.2017.1716
Language:
English
Publisher:
Institute for Operations Research and the Management Sciences (INFORMS)
Publication Date:
2018
detail.hit.zdb_id:
2019440-7
detail.hit.zdb_id:
123389-0
SSG:
3,2
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