We investigate the influence of the dependence between random losses on the shortfall and on the diversification benefit that arises from merging these losses.We prove that increasing the dependence between losses, expressed in terms of correlation order, has an increasing effect on the...

This paper develops a unifying framework for allocating the aggregate capital of a financial firm to its business units. The approach relies on an optimisation argument, requiring that the weighted sum of measures for the deviations of the business unit's losses from their respective allocated...

Tasche (1999) introduces a capital allocation principle where the capital allocated to each risk unit can be expressed in terms of its contribution to the conditional tail expectation (CTE) of the aggregate risk. Panjer (2002) derives a closed-form expression for this allocation rule in the...

Even in case of the Brownian motion as most natural rate of return model it appears too difficult to obtain analytic expressions for most risk measures of constant continuous annuities. In literature so-called comonotonic approximations have been proposed but these still require the evaluation...

The Basel Accords represent landmark financial agreements for the regulation of commercial banks. The main purpose of the accords was to strengthen the soundness and stability of the international banking system by providing a minimum standard for capital requirements. In 2004, the Basel...

In this paper we consider different approximations for computing the distribution function or risk measures related to a discrete sum of nonindependent lognormal random variables. Comonotonic upper bound and lower bound approximations for such sums have been proposed in Dhaene et al. (2002a,b)....