ERM-119-14: Aggregation of Risks and Allocation of Capital



Reading Source: ERM-119-14 Study Note

Topics Covered in this Reading:

  • Risk Assessment Methodologies
    • Introduction
    • Immediate Stresses
    • Projection Scenarios
    • Multivariate Stress Tests
    • Calibration and ESG Models
  • Aggregation Techniques
    • Introduction
    • Correlation
    • Copulas
    • MultiVariate Methods
  • Application of Capital Allocation
    • Pricing & Technical Provisions
    • Risk Budgeting and Capital Allocation
    • Risk Adjusted Performance Measurement
  • Allocation of Capital
    • Introduction
    • Marginal Approaches
    • Game Theory
    • Other Approaches

ERM-119-14: Aggregation of risks and Allocation of capital (sections 4-7)


I’d like to clarify the distinction between market consistent and real world probabilities.

For the purpose of this exam - What are the main principles/ideas/takeaways that we need to know regarding market consistent and real world probabilities?

Thank you very much! ! !