A New Approach to Risk Attribution and Its Application in Credit Risk Analysis
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A New Approach to Risk Attribution and Its Application in Credit Risk Analysis

Christoph Frei;Frei, Christoph;
risks 2020 Vol. 8 pp. 65-
185
frei2020risksa

Abstract

How can risk of a company be allocated to its divisions and attributed to risk factors? The Euler principle allows for an economically justified allocation of risk to different divisions. We introduce a method that generalizes the Euler principle to attribute risk to its driving factors when these factors affect losses in a nonlinear way. The method splits loss contributions over time and is straightforward to implement. We show in an example how this risk decomposition can be applied in the context of credit risk.

Keywords

Risk factors risk attribution risk allocation credit risk euler principle

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DOI:
10.3390/risks8020065
URL:
https://doi.org/10.3390/risks8020065

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ID: 109952
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