Abstract
Since the seminal of Markowitz (1952) and Sharpe (1964) capital allocation within portfolios is based on the variance/covariance analysis. Even the introduction of Value-at-Risk in order to measure risk more accurately than in terms of standard deviation, did not chance the calculation of a risk contribution of single asset in the portfolio or its contributory capital as a multiple of the asset’s β with the portfolio. This approach is based on the assumption that asset returns are normally distributed. Under this assumption, the capital of a portfolio, usually defined as a quantile of the distribution of changes of the portfolio. Since the βs yield a nice decomposition of the portfolio standard deviation and exhibit the interpretation as an infinitesimal marginal risk contribution (or more mathematically as a partial derivative of the portfolio standard deviation with respect to an increase of the weight of an asset in the portfolio), these useful properties also hold for the quantie, i.e. for the capital.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
Bibliography
Artzner, P., Dealban, F., Eber, J. and Heath, D. (1997a). Credit risk — a risk special supplement, RISK MAGAZINE 7.
Artzner, P., Dealban, F., Eber, J. and Heath, D. (1997b). Thinking coherently, RISK MAGAZINE.
Baestaens, D. and van den Bergh, W. M. (1997). A portfolio approach to default risk, Neural Network World 7: 529–541.
Credit Metrics (1997). Technical report, J.P. Morgan & Co.
Embrechts, P., Klüppelberg, C. and Mikosch, T. (1997). Modelling Extremal Events, Springer, Berlin.
Fingers, C. (1999). Conditional approaches for creditmetrics portfolio distribution, CreditMetrics Monitor.
Kealhofer, S. (1995). Managing default risk in portfolio of derivatives, Derivative Credit Risk: Advances in Measurement and Management, Renaissance Risk Publications.
Kealhofer, S. and Crosbie, P. (1997). Modeling portfolio risk, internal document, Technical report, KMV Corporation, San Francisco.
Markowitz, H. M. (1952). Portfolio selection, Journal of Finance 7.
Merton, R. (1974). On the pricing of corporate debt: The risk structure of interest rates, The Journal of Finance 29: 449–470.
Overbeck, L. and Stahl, G. (1997). Stochastische Methoden im Risikomanagement des Kreditportfolios, Oehler.
Risk, C. (1997). A credit risk management framework, Technical report, Credit Suisse Financial Products.
Schmid, B. (1997). Creditmetrics, Solutions 1(3-4): 35–53.
Sharpe, W. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk, Journal of Finance 19.
Vasicek, O. A. (1997). Credit valuation, Net Exposure 1.
Wilson, T. (1997). Portfolio credit risk (i+ii), Risk Magazine 10.
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2000 Springer Science+Business Media New York
About this chapter
Cite this chapter
Overbeck, L. (2000). Allocation of Economic Capital in loan portfolios. In: Franke, J., Stahl, G., Härdle, W. (eds) Measuring Risk in Complex Stochastic Systems. Lecture Notes in Statistics, vol 147. Springer, New York, NY. https://doi.org/10.1007/978-1-4612-1214-0_1
Download citation
DOI: https://doi.org/10.1007/978-1-4612-1214-0_1
Publisher Name: Springer, New York, NY
Print ISBN: 978-0-387-98996-9
Online ISBN: 978-1-4612-1214-0
eBook Packages: Springer Book Archive