Risk Aggregation and Allocation in the Presence of Systematic Risk via Stable Laws
Effective risk management requires understanding aggregate risks, individual business unit riskiness, and systemic risks. Realistic models must consider complex phenomena like heterogeneous marginals and excess kurtosis. A modified individual risk model using Multivariate Stable Distributions addresses these challenges, enabling tractable aggregation, dependence analysis, and Tail Conditional Expectation calculations for aggregate risks.