engleski

Asset risk evaluation using shapley value

This paper proposes a method to evaluate the risk of an individual asset in a portfolio using game theory notions. Shapley value is a solution concept of cooperative game theory that divides overall utility of a coalition among the players. It can be shown that it is the only possible fair division, meaning that it satisfies the so-called Shapley´s axioms which offer the mathematical representation of fairness. It takes into account the marginal contribution of a player – their contribution to each possible coalition, compared to a coalition without that player. This concept has been used in many fields to assess the fair division of utility, but also to find a fair cost division among entities participating in a project. Even though variance is the most- commonly used risk measure of an asset, there are many other measures that can be used. There are advantages and drawbacks to each measure, and choosing the best one for asset risk is still an open question. It is well known that, when assessing the risk of an individual asset, one must take into account its connection to the other assets on the market. The aim of this paper is to offer a way to represent the risk of an asset as a single measure but still taking into account its connection within the market. This will be achieved using Shapley's value of an asset, where the risk will be treated as a cost that needs to be divided among assets. Using this methodology, it will be determined to what extent individual asset contributes to total risk of a portfolio. The method will be evaluated using the Zagreb Stock Exchange data. Taking into account the advantages of this approach, the authors hope that this measure has its place in portfolio analysis and determining the key components of market risk.

shapley value ; risk assessment ; portfolio risk

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