Comparison between the Economic Capital Allocation Methods based on Value at Risk and Expected Shortfall

The paper is aimed at analyzing the differences in economic capital allocation between the two risk measures, i.e VaR (value at risk)and ES(expected shortfall). Based on the Vasicek's model for the loss distribution of credit portfolio and the two risk measures, the two allocating approaches to economic capital are discussed, and by a case study, the differences in economic capital allocation between these VaR and ES is compared. The results show that, the economic capital determined by ES is more conservative than the one determined by VaR, and compared with the method based on VaR, the allocating method of economic capital based on ES better reflects the risk characteristic of assets, and can be implemented more easily.