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Value at risk, Equity and Diversification

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  • Broll, Udo
  • Wahl, Jack E.
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    Abstract

    The value at risk measure attempts to summarize in a single number market value risk of a portfolio of financial assets.The paper focuses on the interaction between the solvency probability of a bank, on one hand, and the diversification potential of its portfolio, on the other hand, when optimum endowment of equity capital is to be determined. Given the necessity to achieve some confidence level of solvency we demonstrate that diversification pays when optimizing the use of the equity resource. --

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    File URL: http://econstor.eu/bitstream/10419/22730/1/DDPE200603.pdf
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    Bibliographic Info

    Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 03/06.

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    Date of creation: 2006
    Date of revision:
    Handle: RePEc:zbw:tuddps:0306

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    Postal: 01062 Dresden
    Phone: ++49 351 463 2196
    Fax: ++49 351 463 7739
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    Web page: http://www.tu-dresden.de/wiwi/
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    Related research

    Keywords: equity capital; banking; value at risk; diversification; risk management; asset-liability management;

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    References

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    1. Udo Broll & Jack E. Wahl & Wing-Keung Wong, 2005. "Elasticity of risk aversion and international trade," Development Research Unit Working Paper Series 07/05, Monash University, Department of Economics.
    2. Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1999. "Hedging exchange rate risk: The multiperiod case," Research in Economics, Elsevier, vol. 53(4), pages 365-380, December.
    3. Katerina Simons, 2000. "Use of value at risk by institutional investors," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 21-30.
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