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...

The risk that a financial institution will experience a loss because it did not accurately determine the fair value of the financial instruments on its balance sheet is known as Valuation Risk (VR). That risk is sometimes heightened because determining fair value is not always a simple or...

This paper analyzes the impact of various assumptions about the association between aggregate default probabilities and the loss given default on bank loans and corporate bonds, and seeks to empirically explain this critical relationship.(...)