FEEM working papers "Note di lavoro" series
2014 .047

Risk Allocation under Liquidity Constraints


Autori: Péter Csóka, P. Jean-Jacques Herings
Serie: Climate Change and Sustainable Development
Editor: Carlo Carraro
Parole chiave: Market Microstructure, Coherent Measures of Risk, Market Liquidity, Portfolio Performance Evaluation, Risk Capital Allocation, Totally Balanced Games
Numero JEL: C71, G10

Abstract

Risk allocation games are cooperative games that are used to attribute the risk of a financial entity to its divisions. In this paper, we extend the literature on risk allocation games by incorporating liquidity considerations. A liquidity policy specifies state-dependent liquidity requirements that a portfolio should obey. To comply with the liquidity policy, a financial entity may have to liquidate part of its assets, which is costly. The definition of a risk allocation game under liquidity constraints is not straight- forward, since the presence of a liquidity policy leads to externalities. We argue that the standard worst case approach should not be used here and present an alternative definition. We show that the resulting class of transferable utility games coincides with the class of totally balanced games. It follows from our results that also when taking liquidity considerations into account there is always a stable way to allocate risk.

***

Suggested citation: Csóka, P., P. J.-J. Herings, (2014), 'Risk Allocation under Liquidity Constraints', Nota di Lavoro 47.2014, Milan, Italy: Fondazione Eni Enrico Mattei.

Download file
Scarica il file PDF

FEEM Newsletter

Iscriviti per rimanere aggiornato.

I Suoi dati saranno trattati dalla Fondazione Eni Enrico Mattei. – Titolare del trattamento – per ricevere via posta elettronica la newsletter della Fondazione. Il conferimento dell’indirizzo e-mail è necessario alla fornitura del servizio. La invitiamo a consultare la Privacy Policy per ottenere maggiori informazioni a tutela dei Suoi diritti.

Questo Sito utilizza cookie tecnici e analytics, nonché consente l’invio di cookie di profilazione di terze parti.
Chiudendo questo banner o comunque proseguendo la navigazione sul Sito manifesti il tuo consenso all’uso dei cookie. Per ulteriori informazioni e per esprimere scelte selettive in ordine all’uso dei cookie vedi la   Cookie PolicyOk