Ch17经济资本和风险调整的资本收益（EconomicCapital andRAROC）.pptVIP

Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 RAROC (page 436) RAROC is the return on economic capital for a business unit The denominator is the economic capital allocated to the business unit The numerator is the expected profit. This can be before or after tax and can include a interest at the risk-free rate on the economic capital It is sometimes also referred to as RORAC * Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 Example 21.5 (page 437) When lending in a certain region of the world an AA-rated bank estimates its average losses from defaults as 1% of outstanding loans per year The 99.9% worst case loss is 5% of outstanding loans Economic capital per $100 of loans is therefore $4 * Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 Example continued The bank’s spread between cost of funds and interest charged is 2.5% and administrative costs are 0.7% * Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 Ex-ante vs Ex-post RAROC was originally suggested as a tool to be used on an ex-ante basis. This means that we have to forecast the expected loss It is then used as a tool to allocate capital to the most profitable parts of the business It is also sometimes used on an ex-post basis for performance evaluation. Realized loss then replaces expected loss * * Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 Economic Capital and RAROC Chapter 21 * Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 Economic Capital A bank’s own assessment of the capital it requires * Risk Management and Financial Institutions 2e, Chapter 21, Copyright ? John C. Hull 2009 Model Used for Economic and Capital (Same as Regulatory Capital) Figure 21.1, page 426 Loss over time horizon Expected Loss X% Worst Case Loss Capital * Risk Ma