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Risk-adjusted measures of value creation in financial institutions

Milne, Alistair; Onorato, Mario - Suomen Pankki - 2009

Measuring value creation by comparing the RAROC of an exposure (the return on risk capital) with a single institution …-wide hurdle rate is inconsistent with the standard theory of financial valuation. We use asset pricing theory to determine the … appropriate hurdle rate for such a RAROC performance measure. We find that this hurdle rate varies with the skewness of asset …

Persistent link: https://www.econbiz.de/10008509435

Kreditrisiken - Modellierung und Management: Ein Überblick

Albrecht, Peter - In: German Risk and Insurance Review (GRIR) 1 (2005) 2, pp. 22-152

Die Messung und Bewertung von Kreditrisiken stellt sich aktuell als ein sehr bedeutsames (Stichworte : Basel II, Solvency II, Kreditderivate) Gebiet dar. Allerdings hat sich hierbei keine einheitliche Vorgehensweise herausgebildet, sondern es existieren eine Vielzahl unterschiedlicher...

Persistent link: https://www.econbiz.de/10010984673

An economic capital model integrating credit and interest rate risk in the banking book

Alessandri, Piergiorgio; Drehmann, Mathias - European Central Bank - 2009

Banks typically determine their capital levels by separately analysing credit and interest rate risk, but the interaction between the two is significant and potentially complex. We develop an integrated economic capital model for a banking book where all exposures are held to maturity. Our...

Persistent link: https://www.econbiz.de/10005002780

An economic capital model integrating credit and interest rate risk in the banking book

Alessandri, Piergiorgio; Drehmann, Mathias - Bank of England - 2010

Banks often measure credit and interest rate risk separately and then add the two risk measures to determine their overall economic capital. This approach misses complex interactions between the two risks. We develop a framework where credit and interest rate risks are analysed jointly. We focus...

Persistent link: https://www.econbiz.de/10005018055

Leveraging regulatory investments with portfolio risk-based pricing

Cartwright, Paul; Sarraf, Hanna - In: Journal of Financial Regulation and Compliance 13 (2005) July, pp. 215-223

In preparing to comply with the new International Financial Reporting Standards and the Basel II Accord's capital adequacy standards, leading banks are leveraging investments in these regulations by applying risk management and capital allocation best practices to adjust pricing decisions. Among...

Persistent link: https://www.econbiz.de/10004987563

The Present, Future and Imperfect of Financial Risk Management

Alexandra, Carol - Henley Business School, University of Reading - 2003

Current research on financial risk management applications of econometrics centres on the accurate assessment of individual market and credit risks with relatively little theoretical or applied econometric research on other types of risk, aggregation risk, data incompleteness and optimal risk...

Persistent link: https://www.econbiz.de/10005146615

The Allocation of Economic Capital in Opaque Financial Conglomerates

Mierzejewski, Fernando - Volkswirtschaftliche Fakultät, … - 2008

The capital structure of firms that face restrictions on liquidity (i.e. that cannot hedge continuously) is affected by the agency costs and moral-hazard implicit in the contracts they establish with stockholders and customers. It is demonstrated in this paper that then an optimal level of...

Persistent link: https://www.econbiz.de/10005789668

Economic capital allocation under liquidity constraints

Mierzejewski, Fernando - Volkswirtschaftliche Fakultät, … - 2006

Since the capital structure affects the performance of financial institutions confronted to liquidity constraints, the Economic Capital is determined by the maximisation of value. Allowing economic decisions to be characterised by a distorted probability distribution, so assessing the attitude...

Persistent link: https://www.econbiz.de/10005790336

Ratings Migration and the Business Cycle, With Application to Credit Portfolio Stress Testing

Bangia, Anil; Diebold, Francis X.; Schuermann, Til - Financial Institutions Center, Wharton School of Business - 2000

The turmoil in the capital markets in 1997 and 1998 has highlighted the need for systematic stress testing of banks' portfolios, including both their trading and lending books. We propose that underlying macroeconomic volatility is a key part of a useful conceptual framework for stress testing...

Persistent link: https://www.econbiz.de/10005794358

Analyzing the impact of credit migration in a portfolio setting

Tsaig, Yaakov; Levy, Amnon; Wang, Yashan - In: Journal of Banking & Finance 35 (2011) 12, pp. 3145-3157

Credit migration is an essential component of credit portfolio modeling. In this paper, we outline a framework for gauging the effects of credit migration on portfolio risk measurements. For a typical loan portfolio, we find credit migration can explain as much as 51% of volatility and 35% of...

Persistent link: https://www.econbiz.de/10011065592

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