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There are three pitfalls with such a practice, namely, lack of consistency, negligence of cost of capital, and disentanglement of allocated capitals from standalone capitals. In this paper, we introduce a holistic approach that aims to strike a balance of optimality by taking into account competing interests of various stakeholders and conflicting priorities in a corporate hierarchy. While unconventional in its objective, the new approach results in an allocation of diversification benefit, which conforms to the diversification strategy of many risk management frameworks including regulatory capital and economic capital. The holistic capital setting and allocation principle provides a remedy to aforementioned problems with the existing two-step industry practice.<\/jats:p>","DOI":"10.1007\/s10479-021-03987-4","type":"journal-article","created":{"date-parts":[[2021,2,26]],"date-time":"2021-02-26T13:04:43Z","timestamp":1614344683000},"page":"21-54","update-policy":"https:\/\/doi.org\/10.1007\/springer_crossmark_policy","source":"Crossref","is-referenced-by-count":9,"title":["Holistic principle for risk aggregation and capital allocation"],"prefix":"10.1007","volume":"330","author":[{"ORCID":"https:\/\/orcid.org\/0000-0003-1518-6410","authenticated-orcid":false,"given":"Wing Fung","family":"Chong","sequence":"first","affiliation":[]},{"given":"Runhuan","family":"Feng","sequence":"additional","affiliation":[]},{"given":"Longhao","family":"Jin","sequence":"additional","affiliation":[]}],"member":"297","published-online":{"date-parts":[[2021,2,26]]},"reference":[{"issue":"3","key":"3987_CR1","doi-asserted-by":"publisher","first-page":"333","DOI":"10.2307\/251398","volume":"38","author":"JJ Anderson","year":"1971","unstructured":"Anderson, J. 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