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Dematerialising Capital In Financial Firms: An Option Based Approach

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  • Ciccarelli Salvatore

Abstract

Risk management is at present essential to the banking business mainly as a discipline geared to the protection of depositors with a strong capital support. But risk management yields other benefits, offering a well-grounded procedure to allocate capital and to price banking products. Value at Risk (VAR) is by far the most common methodology for quantifying risk in banks’ portfolios. In this paper we explore an alternative technique. Starting from a proposal by Merton and Perold an options based approach is suggested that - alternative to the VAR methodology – outlines a significant difference between cash and risk capital.

Suggested Citation

  • Ciccarelli Salvatore, 2004. "Dematerialising Capital In Financial Firms: An Option Based Approach," Finance 0405013, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0405013
    Note: Type of Document - pdf; pages: 22
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0405/0405013.pdf
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    More about this item

    Keywords

    BANK CAPITAL; OPTION; RISK CAPITAL;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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