Modelling dependence in finance using copulas - Thierry Roncalli's ...

3.1 General framework of capital allocation
Quantile notion of the risk Let F be the (potential) loss
probability distribution (we denote ϑ the corresponding r.v.) and
1 − α be the target insolvency rate. The capital charge VaR (or
Capital-at-Risk/Value-at-Risk) is defined by
or by
Pr {ϑ > VaR} = 1 − α
VaR = inf {x | F (x) ≥ 1−α}
In general, we distinguish Economic Capital (computed with internal
models) and Regulatory Capital (computed according to methods
given by the Basel Commitee on Banking Supervision).
Modelling dependence in finance using copulas
An open field for risk management 3-2