2026/03/27 by Wing Fung Chong, Runhuan Feng, Kenneth Tsz Hin Ng · 1 voice · 1 citation
Economics, Econometrics and Finance · #q-fin.RM
This article proposes a new class of risk-sharing rules by exploring the relationship between capital allocation and risk sharing. While the former is concerned with ex-ante allocating capitals to different lines of business within a corporation based on the relationship among the individual risks, often also through the aggregate risk, the latter is an arrangement which collects risks from and allocates them to, also ex-ante, a group of participants. Drawing on this analogy, we introduce a novel idea of inducing risk-sharing rules by randomizing existing capital allocation principles. Such an approach derives new risk-sharing rules complementing known results in the literature, which were largely based on economic principles and Pareto optimality.