Expected shortfall and VAR: cracking the marginal allocations

A new method to estimate marginal VAR and marginal ES is presented


A major motivation for estimating marginal or component value-at-risk is to allocate VAR-based market risk and CVA (regulatory) capital measures of a portfolio to a sub-portfolio or a trade within the larger portfolio. While the current regulations mandate VAR-based capital measures, the upcoming Fundamental review of the trading book (FRTB) will require expected shortfall (ES) to replace VAR. However, we expect VAR to still be an important tool in portfolio risk management. Thus, the aim of

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