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

The correlation between market risk and credit risk in the same business unit is 0.3. The correlation between credit risk in one business unit and credit risk in another 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?

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Business unit 1 2 Market risk Credit risk Operational risk 188 10 50 30 30 50 10