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Assessment of Economic Capital: An Equity Market approach

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  • Bandyopadhyay, Arindam
  • Saha, Asish

Abstract

Assessment of individual bank’s need for economic capital will enable them to understand their actual solvency position for internal management of capital and evaluating the larger strategic issues like expanding or contracting its risk appetite to generate returns. This paper is an attempt to empirically demonstrate the process of estimating bank's mark to market measure of economic capital on an integrated basis. Such measure will help the bank as well as the regulator to understand the bank's solvency position on a regular basis. The top down approach followed in this paper will also assist the bank to measure Risk Adjusted Return on its entire business and examine its economic value addition on an integrated basis.

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File URL: http://mpra.ub.uni-muenchen.de/9098/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9098.

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Date of creation: 07 Feb 2008
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Handle: RePEc:pra:mprapa:9098

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Keywords: Bank Solvency; Economic Capital; Integrated Risk Management;

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  1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 29(2), pages 449-70, May.
  2. Arindam Bandyopadhyay, 2007. "Mapping corporate drift towards default: Part 1: a market-based approach," Journal of Risk Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 8(1), pages 35-45, January.
  3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  4. Arnaud Jobert & Janet Kong & Jorge A. Chan-Lau, 2004. "An Option-Based Approach to Bank Vulnerabilities in Emerging Markets," IMF Working Papers 04/33, International Monetary Fund.
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