Capital-Allocation-Induced Risk Sharing

Wing Fung Chong; Runhuan Feng; Kenneth Tsz Hin Ng

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arXiv · 2603.26491

Capital-Allocation-Induced Risk Sharing

Wing Fung Chong·Runhuan Feng·Kenneth Tsz Hin Ng

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Abstract

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.

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Wing Fung Chong, Runhuan Feng, Kenneth Tsz Hin Ng. 2026-03-27. Capital-Allocation-Induced Risk Sharing. https://arxiv.org/abs/2603.26491

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