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Optimum Bank Equity Capital and Value at Risk

  • Udo Broll
  • Jack E. Wahl

Abstract

In recent years, value at risk (VaR) has become a heavily used risk management tool in the banking sector. Roughly speaking, the value at risk of a portfolio is the loss in market value over a risk horizon that is exceeded with a small probability. Bank management can apply the value at risk concept to set capital requirements because VaR models allow for an estimate of capital loss due to market risk (see, e.g. Duffie/Pan, 1997; Jackson/Maude/Perraudin, 1997; Jorion, 1997; Saunders, 1999; Friedmann/Sanddorf-Köhle, 2000; Hartmann-Wendels/Pfingsten/Weber, 2000; Simons, 2000). The aim of our study is to answer the question what is the optimum amount of equity capital of a banking firm under the value at risk concept?

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Copyright information

© Betriebswirtschaftlicher Verlag Dr. Th. Gabler GmbH, Wiesbaden 2002

Authors and Affiliations

  • Udo Broll
  • Jack E. Wahl

There are no affiliations available

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