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Group cohesion under individual regulatory constraints

Coculescu, Delia; Delbaen, Freddy (2020). Group cohesion under individual regulatory constraints. ArXiv.org 2010.0142, Cornell University.

Abstract

We consider a group consisting of N business units. We suppose there are regulatory constraints for each unit, more precisely, the net worth of each business unit is required to belong to a set of acceptable risks, assumed to be a convex cone. Because of these requirements, there are less incentives to operate under a group structure, as creating one single business unit, or altering the liability repartition among units, may allow to reduce the required capital. We analyse the possibilities for the group to benefit from a diversification effect and economise on the cost of capital. We define and study the risk measures that allow for any group to achieve the minimal capital, as if it were a single unit, without altering the liability of business units, and despite the individual admissibility constraints. We call these risk measures cohesive risk measures, we prove cohesive risk measures are tail expectations but calculated under a different probability.

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Finance
Dewey Decimal Classification:330 Economics
Scope:Discipline-based scholarship (basic research)
Language:English
Date:2020
Deposited On:07 Oct 2020 08:08
Last Modified:27 May 2024 15:23
Series Name:ArXiv.org
Number of Pages:15
ISSN:2331-8422
OA Status:Green
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.48550/arXiv.2010.01428
Related URLs:https://www.zora.uzh.ch/id/eprint/204813/
Other Identification Number:merlin-id:19855
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