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Title: Compositional methods applied to capital allocation problems
Author: Belles Sampera, Jaume
Guillén, Montserrat
Santolino, Miguel
Keywords: Risc (Economia)
Issue Date: Dec-2016
Publisher: Incisive Media
Abstract: In this paper, we examine the relationship between capital allocation problems and compositional data, ie, information that refers to the parts of a whole conveying relative information. We show that capital allocation principles can be interpreted as compositions. The natural geometry and vector space structure of compositional data are used to operate with capital allocation solutions. The distance and average that are appropriated in the geometric structure of compositions are presented. We demonstrate that these two concepts can be used to compare capital allocation principles and merge them. An illustration is provided to show how the distance between capital allocation solutions and average of these solutions can be computed, and interpreted, by risk managers in practice.
Note: Reproducció del document publicat a:
It is part of: Journal of Risk, 2016, vol. 19, num. 2, p. 1-10
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ISSN: 1465-1211
Appears in Collections:Articles publicats en revistes (Econometria, Estadística i Economia Aplicada)

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