Internal models-based capital regulation and bank risk-taking incentives, Issues 2002-2125
International Monetary Fund, 2002 - Business & Economics - 31 pages
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Using VaR to Calculate Capital in the Absence of Bank SafetyNet Protections
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1-Year MTM Capital 2-Year Bond arbitrage asset volatility bank investment opportunity bank shareholders bank's debt bank's funding debt Basel Accord Basel Committee basis points Black-Scholes Bond Market Value bond's par value BSM model buffer stock capital Committee on Banking credit risk capital credit risk setting default option value Deposit Insurance Value economic capital equilibrium market value ex ante value firm's assets geometric Brownian motion initial market value insurance subsidy insurance value surface interest subsidy internal models approach internal models capital investment opportunity set Mark-to-Market market price market risk capital Merton model economic models capital requirement MTM Capital Requirement one-year ParF Parp percent internal models price of risk put option regulatory capital requirements return volatility risk capital allocation risk free rate risky discount bonds safety net funding safety net guarantees safety net subsidy stock capital allocations strike price supporting assets target default rate underlying assets Value in basis value of 100 volatility risk