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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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The aggregation of risks

As banks face multiple sources of risk, for example interest rate risks related to movement in the dollar interest rate, the euro interest rate, the pound sterling interest rate . . ., one looks for a measure of total aggregated risk. Although one could take the sum of each individual risk (the potential loss if an interest rate goes in the wrong direction), many banks incorporate the benefits of diversification in their measure of total, aggregated risk.

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