ABSTRACT
IN THE BASELINE APPROACH proposed by IAA, which is introduced in Chapter 14, the totalsquared capital requirement is the sum of the cross-products of different capital requirements from the risks incorporated into the model. They are added using a correlation matrix. As this approach is based on a multivariate normal distribution serving as a firstorder approximation, the correlations used are the linear correlation coefficients; see, for example, Equation 14.3b.
