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| Identificatore numerico | 2399 |
| Identificatore completo | GoovaertsvandenBorreLaeven04 |
| Autore/i | Goovaerts, M.; van den Borre, E.; Laeven, R.J.A. |
| Anno | 2004 |
| Titolo | Managing Economic and Virtual Economic Capital Within Financial Conglomerates |
| Tipo di Pubblicazione | paper |
| Altre Informazioni | Working Paper, January 31 Web Download. |
| Keywords | Capital budgeting - allocation -; Risk management istituzioni finanziarie - Risk management integrato; VAR - Capital allocation |
| Abstract | In the present contribution we show how the optimal amount of economic capital can be derived such that it minimizes the economic cost of risk-bearing. The economic cost of risk-bearing takes into account the cost of the economic capital as well as the cost of the residual risk. In addition to the absolute problem of the determination of the amount of economic capital, we also consider the relative problem of how to establish the allocation of economic capital among subsidiaries. However, since subsidiaries are juridical entities they will also solve the problem of economic capital allocation themselves. Clearly, in an equilibrium situation the relative allocation derived by the conglomerate and the absolute allocation derived by the subsidiaries coincide. We show that the diversification benefit which is typically obtained in a conglomerate construction, creates a virtual economic capital for subsidiaries within the conglomerate. We show furthermore that the absolute allocation approach can also be applied to the problem of optimal portfolio selection, extending the well-known Markovitz approach and providing a tool for management by economic capital. |
| Importanza | media |
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