Homework answers / question archive / Suppose that the economic capital estimate for two business units are as follows: Type of risk                  Business Unit1                             Business Unit 2 Market risk                       10                                                        50 Credit risk                        30                                                        30 Operational risk                50                                                       10  The correlation between market risk and credit risk in the same business unit is 0

Suppose that the economic capital estimate for two business units are as follows: Type of risk                  Business Unit1                             Business Unit 2 Market risk                       10                                                        50 Credit risk                        30                                                        30 Operational risk                50                                                       10  The correlation between market risk and credit risk in the same business unit is 0

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Suppose that the economic capital estimate for two business units are as follows:

Type of risk                  Business Unit1                             Business Unit 2

Market risk                       10                                                        50

Credit risk                        30                                                        30

Operational risk                50                                                       10

 The correlation between market risk and credit risk in the same business unit is 0.3. The corre- lation between credit risk in one business unit and credit risk in the other is 0.7. The correlation between market risk in one business unit and market risk in the other is 0.2. All other correlations are zero. Calculate the total economic capital. How much should be allocated to each business unit?