Tut Week 9.docx

How confident does the firm want to be in their

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

- How confident does the firm want to be in their ability to withstand losses of some predetermined level? In taking these steps, the firm is then able to come up with a dollar value for CVaR and that dollar value is the economic capital of the firm Additional explanation
Image of page 2

Subscribe to view the full document.

Time horizon: allows firms to determine how bad losses can be, since generally, the longer the time period, the larger the loss. Default probability also increases with time Loss distribution: calculation of a loss distributions shows the probability of losses occurring and the size of these losses. allows the confidence level to be applied. Confidence level: in choosing the confidence level that the firm wants to be able to withstand large losses, the firm can then put a value to CVaR. Related to firms risk appetite and also credit rating. 2 nd presenter 8.5: What is the difference between economic and regulatory capital? Economic capital: - buffer for unexpected losses, not expected to be spent - the amount of economic capital needs to be significant, greater risk in transactions require more capital - is an amount internally set by management Regulatory - capital requirement set by regulators based on their views of the entity’s risk taken - set to protect the public’s deposits - 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?
Image of page 3
Image of page 4
  • Fall '19
  • Credit rating, Risk in finance, Operational risk, 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