Value at Risk and Bank Capital Management

CHAPTER

♦

6

Risk Capital Aggregation

So far we have discussed how different risk types, such as market, credit, operational,

and business risks, can be measured. Yet in order to support top-management decisions

concerning capital management and capital allocation, an integrated picture of risks is

needed. The challenge of risk aggregation, i.e., the development of quantitative risk mea-

sures, such as an aggregated estimate of economic capital, incorporating multiple types

or sources of risk (see Joint Forum 2003) across different business units, is therefore

particularly important.

Risk aggregation and the size of diversifi cation benefi ts that ...