Risk Aggregation and Capital Allocation Using a New Generalized Archimedean Copula

Risk Measures , Risk Aggregation and Capital Allocation

We consider risk measures, risk aggregation and capital allocation in these lecture notes and build on our earlier introduction to Value-at-Risk (VaR) and Expected Shortfall (ES). We will follow Chapter 8 of the 2 edition of Quantitative Risk Management by MFE quite closely. This chapter, however, contains considerably more material than we will cover and it should be consulted if further detai...

Risk Measures , Risk Aggregation and Capital Allocation 2

In 1999 Artzner et al. proposed a list of properties that any good risk measure should have and this list gave rise to the concept of coherent and incoherent measures of risk. Since then a substantial body of research has developed on the theoretical properties of risk measures and we describe some of these results here. Let M denote the space of random variables representing portfolio losses o...

Risk Capital Aggregation

This article presents a new approach to determine the total risk of a financial institution. The proposed model includes components for credit, market, operational and business risk. Moreover it includes a component for the ownership risk that stems from holding a life insurance company. The approach may be characterised as a base-level aggregation method. However, due to lack of appropriate da...

Risk Based Capital Allocation

Archimedean copula estimation using Bayesian splines smoothing techniques

Copulas enable to specifymultivariate distributions with givenmarginals.Various parametric proposals weremade in the literature for these quantities, mainly in the bivariate case. They can be systematically derived from multivariate distributions with known marginals, yielding e.g. the normal and the Student copulas. Alternatively, one can restrict his/her interest to a sub-family of copulas na...