Aggregating risk capital, with an application to operational risk |
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Authors: | Paul Embrechts Giovanni Puccetti |
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Institution: | (1) Department of Mathematics, ETH Zurich, CH-8092 Zurich, Switzerland;(2) Department of Mathematics for Decisions, University of Firenze, 50134 Firenze, Italy |
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Abstract: | We describe a numerical procedure to obtain bounds on the distribution function of a sum of n dependent risks having fixed marginals. With respect to the existing literature, our method provides improved bounds and
can be applied also to large non-homogeneous portfolios of risks. As an application, we compute the VaR-based minimum capital
requirement for a portfolio of operational risk losses.
JEL Classification G20 · 60E15 · 91B30 |
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Keywords: | Risk aggregation Dependency bounds Operational risk Mass transportation duality theorem Global optimization |
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