Hi everyone,
Economic Capital (EC) was introduced in Chapter 1 as risk capital being used to absorb Unexpected Loss (UL) and is express as multiple of UL. <Page 4>
However, when taken into account in relation to RAROC, it was said that EC is a risk measure that includes both UL and Expected Loss (EL).
I'm a bit confused how these are linked together, could anyone give me some hints please?
Regards,
Carlos
Economic Capital (EC) was introduced in Chapter 1 as risk capital being used to absorb Unexpected Loss (UL) and is express as multiple of UL. <Page 4>
However, when taken into account in relation to RAROC, it was said that EC is a risk measure that includes both UL and Expected Loss (EL).
I'm a bit confused how these are linked together, could anyone give me some hints please?
Regards,
Carlos