Capital Allocation with CreditRisk+

  • Dirk Tasche
Part of the Springer Finance book series (FINANCE)


Capital allocation for credit portfolios has two meanings. First, at portfolio level it means to determine capital as a buffer against an unexpected negative cash-flow resulting from credit losses. In this case, the allocation method can be specified by means of a risk measure. Its result is called economic capital of the portfolio. Second, at subportfolio or transaction level, capital allocation means breaking down the economic capital of the portfolio into its sub-units. The resulting capital assignments are called risk contributions. We discuss several current concepts for economic capital and risk contributions in a general setting. Then we derive formulas and algorithms for these concepts in the special case of the CreditRisk+ methodology with individual independent potential exposure distributions.


Risk Measure Economic Capital Loss Distribution Return Vector Coherent Risk Measure 
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© Springer-Verlag Berlin Heidelberg 2004

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  • Dirk Tasche

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