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Marginal risk contributions are relevant for such decisions as adding or removing a subportfolio, or pricing a new transaction according to its incremental risk. As with absolute risk contributions, marginal risk contributions refer either to capital or to loss volatility.

With small portfolios, as above, there is no mechanical link between absolute and marginal risk contributions. On the other hand, with large portfolios, the absolute risk contributions to volatility and to capital might proxy marginal risk contributions. The distinction deserves attention because vendors models provide different outputs in terms of risk contributions. KMV Portfolio Manager calculates absolute risk contributions, while Credit Metrics calculates marginal risk contributions. Since the diversification of banks portfolios is important, chances are that these measures get close.

It is helpful to identify these cases since the calculation of absolute risk contributions, to loss volatility and to capital, is immediate when the loss distribution is available. On the other hand, recalculating the marginal contributions to capital requires repeated and tedious with and without simulations.

KMV Portfolio Manager provides covariance-based absolute risk contributions to loss volatilities and to capital within a given portfolio. Calculating a marginal risk contribution implies conducting with and without calculations to see the impact on portfolio loss volatility and capital if these differ significantly (the new subportfolio is not a small fraction of the existing portfolio). Credit Metrics provides directly the marginal risk contributions, considering that we can add or remove any facility from the portfolio.