This paper examines the question of how to efficiently align the investment decisions of managers in a bank with the risk/return goals of the centre of the bank. It argues that the contemporary approach aimed at achieving such alignment, which involves the top-down allocation of some proportion...

In June 2004 the Basel Committee on Banking Supervision of the Bank for International Settlements issued its revised framework for the international convergence of capital measurement and capital standards. In developing the framework the Committee has sought to determine risk-sensitive capital...

Extreme value theory (EVT) is regularly put forwarded by academics, practitioners and banking regulators as a methodology for measuring the likelihood of operational risk losses that have a very low probability of occurrence, but which have the potential for catastrophic outcomes in terms of...

This paper develops a framework for examining the impact of changes in the solvency standard of a bank (target credit rating) on the pricing of bank assets. We show that the decision of a bank to increase its solvency standard increases the price of bank assets to the extent that a bank prices...

It is somewhat ironic that while the major focus of regulators and institutions in the financial services sector over recent years has been on developing models for measuring and managing credit risk, most of the large losses in financial institutions over this time have been sourced to...

Within the context of a banking institution, economic capital is a statistical measure of the amount of resources required to meet unexpected losses over a specified time period and specified level of certainty. The amount of economic capital held by banks is thus a function of their target...

This paper reports on the life-time annual returns and volatility of the largest Australian five-star rated investment funds. Using this actual performance data, we model the likelihood that an investor would have viewed the actual performance as either positive or negative based upon the...

The event of a rising share price for a firm following the announcement of its intentions to acquire another firm is generally recognised as a sign of market support for the deal. If the price continues to rise over the offer period, as the market fully digests various items of information...

Merger and acquisition transactions are often explained and justified by reference to their potential capacity to generate value - for example through the achievement of operational synergies, critical scale or optimal scope. In contrast, a significant and growing literature questions the worth...

In this paper we question the relevance, and assess the implications, of the practice in banking to use a uniform hurdle rate based on the cost of equity for the purposes of pricing and performance measurement. We examine three perspectives on this issue. First, we point to the potential...