Allocating Portfolio Economic Capital to Sub-Portfolios
نویسنده
چکیده
Risk adjusted performance measurement for a portfolio involves calculating the contributions to total economic capital for sub-portfolios or single assets. We show that there is only one definition for the contributions which is suitable for performance measurement, namely as derivative of the underlying risk measure with respect to the weight of the considered sub-portfolio or asset. We review the formulas for the derivatives for some popular risk measures including quantile-based value at risk (VaR) and Expected Shortfall in a rather general context.
منابع مشابه
Capital Allocation to Business Units and Sub-Portfolios: the Euler Principle
In many financial institutions, there is a well established practice of measuring the risk of their portfolios in terms of economic capital (cf., e.g. Dev, 2004). Measuring portfolio-wide economic capital, however, is only the first step towards active, portfolio-oriented risk management. For purposes like identification of concentrations, risk-sensitive pricing or portfolio optimization it is ...
متن کاملPrinter : Opaque this 1 Capital Allocation with CreditRisk +
Capital allocation for credit portfolios has two meanings. First, at portfolio level it means to determine capital as a buffer against an unexpected negative cash-flow resulting from credit losses. In this case, the allocation method can be specified by means of a risk measure. Its result is called economic capital of the portfolio. Second, at sub-portfolio or transaction level, capital allocat...
متن کامل3 Capital Allocation with CreditRisk +
Capital allocation for credit portfolios has two meanings. First, at portfolio level it means to determine capital as a buffer against an unexpected negative cash-flow resulting from credit losses. In this case, the allocation method can be specified by means of a risk measure. Its result is called economic capital of the portfolio. Second, at sub-portfolio or transaction level, capital allocat...
متن کاملAnalytical Methods for Hedging Systematic Credit Risk with Linear Factor Portfolios
This paper is part of a series explaining various methodologies for defining and measuring the contributions of systematic factors to economic capital as well as for hedging systematic risk in credit portfolios. Multi-factor credit portfolio models are used widely today for measuring and managing economic capital as well as for pricing credit portfolio instruments such as collateralized debt ob...
متن کاملCapital allocation for credit portfolios with kernel estimators
Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Valueat-Risk (VaR) of the portfolio loss distribution. For many of the credit portfolio risk models used in practice, the VaR contributions then have to be estimated from Monte Carlo samples. In the contex...
متن کامل