In order to protect stakeholders of insurance companies and financial institutions against adverse outcomes of risky businesses, regulators and senior management use capital allocation techniques. For enterprise-wide risk management, it has become important to calculate the contribution of each...

This study evaluates the sensitivity and robustness of the systemic risk measure, Conditional Value-at-Risk (CoVaR), estimated using the vine copula and APARCH-DCC models. We compute the CoVaR for the two portfolios across fve allocation strategies. The novel vine copula captures the complex...

Large banks assess their regulatory capital for market risk using complex, firm-wide Value-at-Risk (VaR) models. In their 'bottom-up' approach to VaR there are many sources of model risk. A recent amendment to banking regulations requires additional market risk capital to cover all these model...

The Euler (or gradient) allocation technique defines a financial institution's marginal cost of a risk exposure via calculation of the gradient of a risk measure evaluated at the institution's current portfolio position. The technique, however, relies on an arbitrary selection of a risk measure....

This paper proposes an intuitive and flexible framework to quantify liquidation risk for financial institutions. We develop a model where the "fundamental" dynamics of assets is modified by price impact from fund liquidations (if any). We characterize mathematically the liquidation schedule of...