Risk Aggregation and Diversification



Reading Source: http://www.cia-ica.ca/docs/default-source/2016/216037e.pdf

Topics Covered in this Reading:

  • Introduction
  • Measuring Aggregate Risk
    • Coherent Risk Measures
    • Backtesting and Robustness of Risk Measures
  • Aggregation and Diversification
    • Diversification and Subadditivity
    • The Fallacy of Using Correlations Only
    • The Impact of Microcorrelations
    • Fitting a Multivariate Distribution
    • Summary
  • Overview of Current Regulation
    • Regulatory Frameworks
    • Comparison and Comments on International Regulatory Frameworks
  • Model Risk on Dependence
  • Conclusions
  • Appendix A - Model Risk of Dependence when Aggregating Risk
    • Convex Upper and Lower Bounds
    • Rearrangement Algorithm
    • Example of Application of the RA
    • Model Risk on Dependence on Variance
    • Model Risk on Dependence on VaR
  • Appendix B - Model Risk on Dependence when Aggregating Risk and Model Risk Quantification
    • Theoretical Setting and Assumptions
    • Practical Framework for the Non-Parametric Approach
    • Bounds on a Given Risk Measure
    • Example of Bounds for Risk Measures of Portfolios with Dependence Uncertainty by Monte Carlo