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Range of Practices and Issues in Economic Capital Frameworks


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It is interesting to me to note that this paper suggests a few things that appear to be inconsistent. In one place, it mentions that the "simple summation" approach to risk aggregation can be thought of as an upper bound since it does not contemplate any diversification benefit. In other places, the paper explicitly mentions that portfolio risk can actually be greater than the sum of the individual risk components when not contemplating any diversification benefit - which suggest to me that the summation approach is not an "upper" bound (unless considering linear dependence only).

I may be off here.