Methods to determine Aggregate Risk Profile
- Incremental Allocation: calculate risk measure for aggregate, then same measure after removing one BU, difference = incremental capital requirement → will leave some portion unallocated
- Marginal allocation: eliminate $1 of revenue or E(loss) from each unit sequentially and use chg in total capital
- Myers-Read method: allocate capital so as to equalize the marginal impact that each BU has on value of Put
- Co-measure approach: establishes firmwide capital requirement using conditional risk measure, and then calculate co-measure for each BU