4.5.Goldfarb

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Exam9
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66581
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4.5.Goldfarb
Updated:
2011-02-15 20:18:21
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Goldfarb
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Goldfarb
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  1. Alternative Income Measures for RAROC
    • GAAP Net Income
    • Statutory Net Income
    • IASB Fair Value Basis Net Income
    • Economic Profit
  2. Alternative Capital Measures for RAROC
    • Not Risk-Adjusted:
    • Actual Commited Capital
    • Mkt Value of Equity (add franchise value)
    • Risk-Adjusted:
    • Regulatory Required Capital
    • Rating Agency Required Capital
    • Economic Capital
    • Risk Capital
  3. Methods to determine Aggregate Risk Profile
    • Incremental Allocation: calculate risk measure for aggregate, then same measure after removing one BU, difference = incremental capital requirement → will leave some portion unallocated
    • Marginal allocation: eliminate $1 of revenue or E(loss) from each unit sequentially and use chg in total capital
    • Myers-Read method: allocate capital so as to equalize the marginal impact that each BU has on value of Put
    • Co-measure approach: establishes firmwide capital requirement using conditional risk measure, and then calculate co-measure for each BU

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