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Risk Capital Aggregation
Year Of Publication: 2005
Month Of Publication: December
Pages: 36
Download Count: 526
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Comment Num: 0
Language: EN
Who Can Read: Free
Date: 2-10-2007
Publisher: Administrator
This article presents a new approach to determine the total risk of a financial institution.The proposed model includes components for credit, market, operationaland business risk. Moreover it includes a component for the ownership risk thatstems from holding a life insurance company. The approach may be characterisedas a base-level aggregation method. However, due to lack of appropriate data,some of the aggregation steps are done on the top level instead. The economicrisk factors used in the base-level aggregation are described by a multivariateGARCH model with Student’s t-distributed innovations. The loss distributionsfor the different risk types are determined by non-linear functions of the fluctuationsin the risk factors. Hence, these marginal loss distributions are indirectlycorrelated through the relationship between the risk factors. The model was originallydeveloped for DnB NOR, the largest financial institution in Norway, andone of the largest ones in the Nordic region. Being adapted to the requirements inthe Basel II regulations, it will play an important part in measuring and assessingthe risk level of the institution
Aas, Kjersti Sign in to follow this author
Dimakos, Xeni Kristine Sign in to follow this author
Oksendal, Anders Sign in to follow this author
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