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Definition of "Risk Aggregation" |
Risk aggregation is the roll-up of low-level risks or sub-risks to higher levels. Risk management for banks or insurance institutions involves risk measurement and risk control at the individual risk level, including market risk, credit risk, and operational risks and also the aggregated risk of these individual risks. To determine the total enterprise risk for a financial institution, all risks must be aggregated. An accurate estimation of the total risk is necessary to control and manage the risk. Risk aggregation is a challenge because it requires an aggregated view of various levels of reporting risks, with differences in metrics, and differences in data sources, etc. It is especially complex to aggregate risk when the joint dependence between all the individual risks has to be specified. Indeed, a common view of the dependence between all individual risks may not be available. |
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