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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Group cohesion under individual regulatory constraints |
| Organization Unit | |
| Authors |
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| Language |
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| Institution | Cornell University |
| Series Name | ArXiv.org |
| Number | 2010.0142 |
| ISSN | 2331-8422 |
| Number of Pages | 15 |
| Date | 2020 |
| Abstract Text | 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. |
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| Digital Object Identifier | 10.48550/arXiv.2010.01428 |
| Other Identification Number | merlin-id:19855 |
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