An Introduction to Economic Capital
Identifies the basic building blocks for economic capital measurement. This work familiarises and trains a newcomer to the economic capital building blocks, risk measures, simulation and basic modelling techniques necessary for an institution to invent their own techniques and parameters for modelling economic capital for various types of risks.
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approach approximation asset classes assumed assumptions bank behaviour best estimates bond business lines capital requirements cashflow challenge changes claims copula correlation matrix counterparty credit risk credit spreads dependency structures diversification economic capital empirical expected loss expected shortfall exposure external data frequency funding liquidity risk Gaussian copula granularity historical horizon impact implied volatility inputs insurance firms insurance risk interest rates internal models liabilities linear correlation lines of business liquidity risk loss data loss distribution marginal distribution market liquidity market risk method Monte Carlo mortality rate multivariate normal distribution operational risk options parameters policyholders portfolio random variables regulatory capital reinsurance returns risk aggregation risk components risk factors risk management risk margins risk measures risk mitigation risk models risk premium risk types risk-free risk-free interest rate scenario analysis simulation Solvency stochastic stress testing tail dependence technical provisions term structure threshold tion tranche variance yield curve