Value at Risk (VaR) is a new technology in financial engineering which helps to measure the risk in the financial world. It can be defined as the maximum possible loss associated with a financial instrument within a given period of time and with a given confidence level. This VaR methodology...

The paper focuses on the interaction between the solvency probability of a banking firm and the diversification potential of its asset portfolio when determining optimal equity capital. The purpose of this paper is to incorporate value at risk (VaR) into the firm-theoretical model of a banking...