Allocation of Portfolio Risk and Outside Options: Which is the Best Coalition Structure Value to Solve the Low-Risk Anomaly?

Abstract

In this paper, we enhance the application of coalition structure (CS) games to the distribution of portfolio risk across individual assets in a portfolio. In a recent paper, CS games were applied for the first time as a risk measure that takes into account the contributions of individual assets to portfolio risk and contributions to the risk of the stock market as a whole. We enhance this approach by using five values for CS games in a simulation study. In this simulation, it can be shown that using CS games has an even higher potential to solve the so-called low-risk puzzle than shown in previous literature.