Abstract
In this paper, a method will be illustrated which begins at the aggregate (portfolio) level for evaluating risk, and ends by producing prices for the component individual risks, effectively allocating the total portfolio risk charge. The result is an internally consistent allocation of diversification benefits. The method effectively extends any risk-valuation theory used at the aggregate portfolio level to the individual risks comprising the portfolio. The resulting prices are additive, with each risk’s price reflecting the degree to which it contributes to total portfolio risk.
Keywords: risk charge, allocation, conditional probability, additivity.
Volume
Berlin
Year
2003
Categories
Actuarial Applications and Methodologies
Enterprise Risk Management
Processes
Integrating Risks
Actuarial Applications and Methodologies
Capital Management
Capital Allocation
Financial and Statistical Methods
Aggregation Methods
Collective Risk Model
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Publications
ASTIN Colloquium
