Optimal capital and risk allocations for law- and cash-invariant convex functions (Q1003351)

The authors consider \(n\) agents with initial endowments from \(L^p\) for any \(p\in[1, \infty]\), who assess the riskiness of their positions by means of some not necessarily monotone, law-invariant convex risk measures. A complete solution to the existence and characterization problem of optimal capital and risk allocations is provided. The main result says that there always exists a solution of this problem in \(L^p\) of the special functional form. In other words, the capital and risk allocation problem always admits a solution via contracts whose payoffs are defined as (increasing Lipschitz-continuous) functions of the aggregate risk \(X\). The existence proof is constructive. The question of uniqueness is also studied.