Marginal Risk Contribution, Diversification, and Economic Capital Allocation

Application of portfolio theory and the use of simulation models have allowed banks to measure the aggregate risk of a portfolio that has many different sources of risk. The objective is to have a measure of risk that incorporates the risk-reduction benefits of diversification. For financial firms with multiple businesses, such as commercial banking, investment banking, and insurance (or with businesses in several countries), a new issue arises: how to measure the risk contribution of a specific business unit, that is, the marginal risk contribution. Although ...

Get Bank Valuation and Value Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk, 2nd Edition, 2nd Edition now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.