Capital Allocation to Business Units and Sub-Portfolios: the Euler Principle
By Dirk Tasche. 2007
160 citations recorded by the source corpus.
Despite the fact that the Euler allocation principle has been adopted by many financial institutions for their internal capital allocation process, a comprehensive description of Euler allocation seems still to be missing. We try to fill this gap by presenting the theoretical background as well as practical aspects. In particular, we discuss how Euler risk contributions can be estimated for some important risk measures. We furthermore investigate the analysis of CDO tranche expected losses by means of Euler's theorem and suggest an approach to measure the impact of risk factors on non-linear portfolios.
Subfields: Finance, Management Science and Operations Research
View Paper: https://www.semanticscholar.org/paper/99df997074408c1a189e6ae440f78fdda66e1f37
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In Finance
In Management Science and Operations Research
Citations in the corpus
- Risk factor contributions in portfolio credit risk models (2010, background): “Tasche (2008) shows how the Euler allocation can be extended to calculate contributions of individual names to CDO tranche losses in a consistent manner and proposes measures for the impact of risk factors in the nonlinear case; Cherny and Madan (2007) study position contributions of conditional…”