In this paper, the authors consider how risk measures, based on internal models of this type, might be integrated into a firm's own methodology for allocating risk capital to its individual business units and for determining its optimal capital structure. They also consider the implications of...

This paper was presented at the conference "Financial services at the crossroads: capital regulation in the twenty-first century" as part of session 5, "International capital allocation at financial institutions." The conference, held at the Federal Reserve Bank of New York on February 26-27,...