Banking Firm, Equity and Value at Risk
The paper focuses on the interaction between the solvency probability of a banking firm and the diversification potential of its asset portfolio when determining optimal equity capital. The purpose of this paper is to incorporate value at risk (VaR) into the firm-theoretical model of a banking firm...
Main Authors: | , , |
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Format: | Article |
Language: | English |
Published: |
University of Economics and Human Sciences in Warsaw
2012-12-01
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Series: | Contemporary Economics |
Online Access: | http://ce.vizja.pl/en/download-pdf/id/269 |
Summary: | The paper focuses on the interaction between the solvency probability of a banking firm and the diversification potential of its asset portfolio when determining optimal equity capital. The purpose of this paper is to incorporate value at risk (VaR) into the firm-theoretical model of a banking firm facing the risk of asset return. Given the necessity to achieve a confidence level for solvency, we demonstrate that diversification reduces the amount of equity. Notably, the VaR concept excludes a separation of equity policy and asset-liability management. |
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ISSN: | 2084-0845 |