Aggregating risk capital, with an application to operational risk

Paul Embrechts and Giovanni Puccetti
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Paul Embrechts: Department of Mathematics, ETH Zurich, CH-8092 Zurich, Switzerland, e-mail: embrechts@math.ethz.ch
Giovanni Puccetti: Department of Mathematics for Decisions, University of Firenze, 50134 Firenze, Italy, e-mail: giovanni.puccetti@dmd.unifi.it

The Geneva Risk and Insurance Review, 2006, vol. 31, issue 2, pages 71-90

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. The Geneva Risk and Insurance Review (2006) 31, 71–90. doi:10.1007/s10713-006-0556-6

Date: 2006
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