Risk Capital Aggregation: The Risk Manager's Perspective

50 Pages Posted: 9 Jun 2004

See all articles by Francesco Saita

Francesco Saita

Bocconi University - Department of Finance

Abstract

Risk aggregation, defined as the development of "quantitative risk measures that incorporate multiple types or sources of risk" aimed at measuring the overall capital at risk for a financial institution, is a critical topic both for banks and for their regulators. This paper points out the critical role that the choice of the notion of "capital" that is considered at risk may have, therefore discussing the issue of business risk, that has so far received very little attention in the literature. The paper then discusses alternative risk aggregation techniques and some of the problems that arise in the estimation of their parameters. Parameter estimation appears to be a major concern when deciding which aggregation technique to adopt, especially considering the implications for risk-adjusted performance measurement and therefore for decisional processes that may derive from the risk aggregation exercise.

Suggested Citation

Saita, Francesco, Risk Capital Aggregation: The Risk Manager's Perspective. EFMA 2004 Basel Meetings Paper, Available at SSRN: https://ssrn.com/abstract=496684 or http://dx.doi.org/10.2139/ssrn.496684

Francesco Saita (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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