Banks are exposed to many different risk types due to their business activities. Among these risk types are credit risk, market risk, operational risk, and business risk. The task of the risk management division is to measure all these risks and to determine the necessary amount of economic capital that is needed as a buffer to absorb losses associated with each of these risks. Most frequently, economic capital is understood as a Value-at-Risk (VaR) number. Thus, it is the amount of capital needed to absorb unexpected losses within a given time priod up to a specified probability.


Credit Risk Economic Capital Market Risk Credit Spread Copula Function 
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  1. 4.
    See Credit Suisse First Boston (1997), Gupton, Finger and Bhatia (1997), Wilson (1997a, b), Crosbie (1998), Kealhofer (1998). For a comparison of these models, see, e.g., Crouhy, Galai, and Mark (2000), Sounders and Allen (2002), or Hartmann-Wendels, Pfingsten and Weber (2004, pp. 545).Google Scholar

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