Economic and regulatory capital allocation for revolving retail exposures*1

Economic capital allocation derived from risk measures

We examine properties of risk measures that can be considered to be in line with some ‘best practice’ rules in insurance, based on solvency margins. We give ample motivation that all economic aspects related to an insurance portfolio should be considered in the definition of a risk measure. As a consequence, conditions arise for comparison as well as for addition of risk measures. We demonstrat...

Ownership , Economic Entrenchment and Allocation of Capital February 2008 Johan

In an efficient economy, capital should be quickly (re)allocated from declining firms and sectors to more profitable investment opportunities. This process is affected by the concentration of corporate control, which in turn is affected by market institutions. We employ a panel of 12,000 firms across 44 countries to estimate the functional efficiency of capital markets. We adapt a measure for t...

a benchmarking approach to optimal asset allocation for insurers and pension funds

uncertainty in the financial market will be driven by underlying brownian motions, while the assets are assumed to be general stochastic processes adapted to the filtration of the brownian motions. the goal of this study is to calculate the accumulated wealth in order to optimize the expected terminal value using a suitable utility function. this thesis introduced the lim-wong’s benchmark fun...

Cost Allocation For Capital Budgeting

Optimal Score Cutoffs and Pricing of Regulatory Capital In Retail Credit Portfolios

This paper addresses the risk cutoff policies of a retail bank whose objectives are to maximize return on equity for shareholders and live within regulatory capital requirements, such as those of the Basel Capital Accord, to meet unexpected default losses. It investigates the changes that have to be made in the operating decision of which applicants for loans to accept and which to reject becau...