A Capital Adequacy Buffer Model
In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model, which measures distance to default, and the timeless capital asset pricing model (CAPM) which measures additional returns to compensate for additional share price risk.
|Date of creation:||16 Oct 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 64 3 369 3123 (Administrator)
Fax: 64 3 364 2635
Web page: http://www.econ.canterbury.ac.nz
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-70, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Kretzschmar, Gavin & McNeil, Alexander J. & Kirchner, Axel, 2010. "Integrated models of capital adequacy - Why banks are undercapitalised," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2838-2850, December.
- Sreedhar T. Bharath & Tyler Shumway, 2008. "Forecasting Default with the Merton Distance to Default Model," Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1339-1369, May.
- Maria Vassalou & Yuhang Xing, 2004. "Default Risk in Equity Returns," Journal of Finance, American Finance Association, vol. 59(2), pages 831-868, 04.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
- Bucher, Monika & Dietrich, Diemo & Hauck, Achim, 2013. "Business cycles, bank credit and crises," Economics Letters, Elsevier, vol. 120(2), pages 229-231.
When requesting a correction, please mention this item's handle: RePEc:cbt:econwp:13/35. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Albert Yee)
If references are entirely missing, you can add them using this form.