Risk Management and Shareholders' Value in Banking: From Risk Measurement Models to Capital Allocation Policies
March 2007
This book presents an integrated framework for risk measurement, capital management and value creation in banks.Moving from the measurement of the risks facing a bank, it defines criteria and rules to support a corporate policy aimed at maximizing shareholders’ value.
Parts I – IV discuss different risk types (including interest rate, market, credit and operational risk) and how to assess the amount of capital they absorb by means of up-to-date, robust risk-measurement models. Part V surveys regulatory capital requirements with special emphasis on Basel II, its economic foundations and managerial implications. Part VI presents models and techniques to calibrate the amount of economic capital at risk needed by the bank, to fine-tune its composition, to allocate it to risktaking units, to estimate the “fair” return expected by shareholders, to monitor the value creation process. Risk Management and Shareholders' Value in Banking includes coverage of:
• Value at Risk,Monte Carlo models, Creditrisk+ and Creditmetrics
• formulae for risk-adjusted loan pricing and risk-adjusted performance measurement
• extensive, hands-on Excel examples are provided on the companion website
• a complete, up-to-date introduction to Basel II
• focus on capital allocation, Raroc, EVA, cost of capital and other valuecreation metrics