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Shapley Allocation - the effect of Services on Diversification

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Abstract

The Shapley method is applied to capital allocation in the context of a simple business model, where many business units supported by services. In this model the services are capable of either reducing the capital payable by the business units, or the opposite. A simple model of evaluating the value of coalitions is proposed, with a modification if a service is a member of the coalition. A closed form formula for the Shapley allocation to all players is derived, thus eliminating combinatorial problems

Suggested Citation

  • Peter Mitic & Bertrand K. Hassani, 2015. "Shapley Allocation - the effect of Services on Diversification," Documents de travail du Centre d'Economie de la Sorbonne 15057, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:15057
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2015/15057.pdf
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    Keywords

    Allocation; Shapley; operational risk; diversification; service; Game theory; capital value;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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