Tut Week 9.docx

More capital is better and getting the capital number

This preview shows page 2 - 4 out of 4 pages.

More capital is better and getting the capital number right is critical for an organisation’s survival . Too little capital means an insufficient cushion , and the company faces a quick death . Determinants of CVaR: 1. Time Horizon 2. The Loss Distribution 3. The Confidence Level 8.5: What is the difference between economic and regulatory capital ? Economic capital: - buffer for unexpected losses, not expected to be spent (缓冲意外损失,预 计不会被花费) - the amount of economic capital needs to be significant , greater risk in transactions require more capital - is an amount internally set by management
Image of page 2

Subscribe to view the full document.

Regulatory - capital requirement set by regulators based on their views of the entity’s risk taken - set to protect the public’s deposits (用于保护公共存款) - based on a formulaic approach that may miss finer details of the entity’s operations that affect its risk profile 8.6: How is default risk different from credit risk? The difference lies in how losses are defined Default risk is considering risk of losses occurring in the event of default only. - it does not consider the counterparty getting downgraded, and still expects to be repaid (它不认为交易对手的信用评级被下调,仍希望得到偿还) - it does not change its view on exposure and does not expect losses. Credit risk considers the risk of loss of value (economic) in their exposures with the MTM approach.
Image of page 3
Image of page 4
  • Fall '19
  • Credit rating, Risk in finance, Value at risk

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern