Playing a key role in both the second pillar of the new Basel framework and the Solvency II project, economic capital models are becoming increasingly important. Economic Capital Modelling provides you with an overview of the current state of play for these cutting edge models from three angles:
a theoretical overview of risk measurement, diversification and aggregation;
a survey of the current state of implementation; and
a supervisory view on the use of these models.
The combination of these three angles is unique and provides you with truly multi-faceted view of this subject.
All aspects of economic capital for financial conglomerates are incorporated. Moreover, this book is set apart from any other in its field because it provides you with a balanced overview from the perspective of both risk managers within institutions and supervisors.
Practitioners, risk managers, policymakers and academics are brought together with their insights combined into a single volume. As the practitioners view is not that of a single institution, consultant or vendor you are able to reflect on the combined insights of a number of institutions that have cutting edge economic capital frameworks.
Economic capital: an overview
Introduction
The importance of risk measurement
Approaches to modelling risk
Measures of risk: economic capital
Regulatory considerations
Concluding remarks
RISK MEASUREMENT WITHIN FINANCIAL CONGLOMERATES: BEST PRACTICES BY RISK TYPE
Summary and conclusions
Risk measurement and economic capital
Risk typology
Market/ALM risk
Credit and transfer risk
Life risk
Non-life or property and casualty risk
Operational risk
Business or strategic risk
Conclusion
APPROPRIATE RISK MEASURES, TIME HORIZON AND VALUATION PRINCIPLES IN ECONOMIC CAPITAL MODELS
Summary and conclusions
Introduction
Risks, risk measures and economic capital
One risk measure for all stakeholders?
Experiences of financial conglomerates
Appropriate time horizons in economic capital
Valuation principles
Concluding remarks
Diversification and aggregation of risks in financial conglomerates
Summary and conclusions
Introduction
Correlation, netting, concentration and granularity
Measurement approaches
Aggregation approaches
Estimation of diversification benefits
Allocation
Data quality and mis-estimation
Regulatory considerations
A SURVEY OF ECONOMIC CAPITAL MODEL IMPLEMENTATION
Summary and conclusions
Introduction
Previous surveys
Objectives for economic capital models
Implementation of economic capital models: an overview
General remarks about all risk types
Approaches per risk type
Future extensions
Concluding remarks
A supervisory view on economic capital models
Summary and conclusions
Introduction
Regulatory developments
Principles for economic capital models
Supervisory issues
Concluding remarks
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