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Value at risk, bank equity and credit risk

Author

Listed:
  • Broll, Udo
  • Wahl, Jack E.

Abstract

We study the implications of the value at risk concept for the bank's optimum amount of equity capital under credit risk. The market value of loans is risky and lognormally distributed. We show that the required equity capital depends upon managerial and market factors. Furthermore, the bank's equity and asset/liability management has to be addressed simultaneously by bank managers.

Suggested Citation

  • Broll, Udo & Wahl, Jack E., 2003. "Value at risk, bank equity and credit risk," Dresden Discussion Paper Series in Economics 04/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    • Handle: RePEc:zbw:tuddps:0403
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    File URL: https://www.econstor.eu/bitstream/10419/48151/1/363575898.pdf
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    References listed on IDEAS

    as
    1. Katerina Simons, 2000. "Use of value at risk by institutional investors," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 21-30.
    2. Patricia Jackson & David Maude & William Perraudin, 1998. "Bank Capital and Value at Risk," Bank of England working papers 79, Bank of England.
    3. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
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    Cited by:

    1. Udo Broll & B. Michael Gilroy & Elmar Lukas, 2007. "Managing Credit Risk With Credit Derivatives," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-13.

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    More about this item

    Keywords

    equity capital; value at risk; banking; risk management; asset/liability management; credit risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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