Risk.net

Aggregation aberration

The graph shows typical capital values based on conduct risk losses covering a five-year period, with varying degrees of aggregation. The general profile of the graph is quite clear: as the degree of aggregation increases, the capital increases. Notice that one of the aggregation levels is missing: aggregation by Day. The capital for aggregation by day is huge: it’s near 21,000. If plotted on the same vertical scale on the graph you would need a screen that reaches almost to the ceiling to mark the spot. It is not entirely clear why this happens, but the main ingredient appears to be a concentration of daily losses on particular days; possibly customer compensation payments tend to be made only on certain days of the week.

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