Economic Capital Measurement of Chinese Banks: A Global Perspective

Mutual-effect and heterogeneity implied in risk create barriers to quantitative management of aggregated risk. Based on modern portfolio theory, this article employs the methodology of risk correlation, and then constructs consistent model on aggregated risk management of Chinese commercial banks. With presented model, this research investigates detailed implementation procedure and model algorithm by using data from representative Chinese regional bank. The empirical results indicate that, due to nonlinear correlation and non-normal distribution, Copula function is considered as the optimal risk aggregation approach.