"AFIR-ERM and ASTIN are pleased to announce a new Working Party on Risk Aggregation with Correlation Matrices.
- In many standardized risk quantification frameworks risks are aggregated using correlation matrices. The formula is valid for aggregating standard deviations but not Value at Risk (VaR) or shortfall (Tail VaR) risk measures where the VaR-to-standard deviation ratio decreases with the aggregation level.
- In this context, the working party aims to develop correction techniques for the fat tail thinning effect when aggregating risks. The research work will include (a) gathering a set of standard approaches, (b) assuming distributions of underlying risks and (c) developing the correction method with a reduced set of inputs.
The working party will be convened by Peter Middlekamp, Swiss Re (Switzerland). Further details and references are contained in the linked document.