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Dematerialising Capital In Financial Firms: An Option Based Approach

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  • Ciccarelli Salvatore
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    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.

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    Paper provided by EconWPA in its series Finance with number 0405013.

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    Length: 22 pages
    Date of creation: 07 May 2004
    Handle: RePEc:wpa:wuwpfi:0405013
    Note: Type of Document - pdf; pages: 22
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