Risk Aggregation and Economic Capital
Posted: 11 June 2010 | Source: SAS
The following paper discusses challenges faced by fi nancial institutions in the areas of risk aggregation and economic capital. SAS has responded to these challenges by delivering an integrated risk offering, SAS® Risk Management for Banking. The solution meets the immediate requirements banks are looking for, while providing a framework to support future business needs.
Risk management for banks involves risk measurement and risk control at the individual risk level, including market risk for trading books, credit risk for trading and banking books, operational risks and aggregate risk management. In many banks, aggregate risk is defi ned using a rollup or risk aggregation model; capital, as well as capital allocation, is based on the aggregate risk model. The aggregate risk is the basis for defi ning a bank’s economic capital, and is used in value-based management such as risk-adjusted performance management.