A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2021; you can also visit the original URL.
The file type is
Covariance Principle for Capital Allocation: A Time-Varying Approach
The covariance allocation principle is one of the most widely used capital allocation principles in practice. Risks change over time, so capital risk allocations should be time-dependent. In this paper, we propose a dynamic covariance capital allocation principle based on the variance-covariance of risks that change over time. The conditional correlation of risks is modeled by means of a dynamic conditional correlation (DCC) model. Unlike the static approach, we show that in our dynamic capitaldoi:10.3390/math9162005 fatcat:peysb7b7izfvhflrgzzz5cagrq