Tid: 2 mars 2009 kl 15.15-16.00

Plats : Seminarierummet 3733, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Hanna Larsson

Titel: Inter-risk Correlation within Economic Capital. (Examensarbete — Master thesis)

Abstract

Economic Capital consists of internally defined capital the purpose of which is to protect share­holders from insolvency up to a given level and over a given time horizon. When calculating its Economic Capital, a bank is allowed to take diversi­fication benefits into account, i.e., account for the corre­lation between risk types in its portfolio. The higher the corre­lation between risks, the lower are the diversi­fication effects, hence a higher amount of Economic Capital is needed. While it is impor­tant for a bank to protect its share­holders from insolvency, a bank should also strive to maintain as little Economic Capital as possible as this enables them to invest capital at a higher rate of return.

The aim of this thesis is to study the inter-risk corre­lation between Nordea’s risks within Economic Capital, i.e., credit, market, business, operational and life and insurance risk, and to investigate whether the current, externally developed, benchmark inter-risk corre­lation matrix needs to be modified. The correlation calculation is based on actual risk figures and historical simulations of risks. The historical simulations are based on relation­ships determined by a linear regression between macro­economic and market risk drivers and the available actual risk figures.

The full report (pdf)

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