risk adjusted return on capital
- Thread starter babu
- Start date
Hi babu,
As precursor to the topic 7 videos, I just uploaded a RAROC learning XLS:
http://www.bionicturtle.com/premium/spreadsheet/7.a.1_raroc_crouhy/
The Altman text has something like yours for RAROC; i.e.,
net income / VaR
(and GARP really needs to reconcile these RAROCs...I will add to the "issues" list)
...but the exam has been following Crouhy's definition for (at least) a couple years, as reflected in the XLS:
numerator: loan revenue + return on economic capital (ROC) - interest expense on deposits (COF) - operating cost - Expected loss (EL)
denominator: economic capital
David
As precursor to the topic 7 videos, I just uploaded a RAROC learning XLS:
http://www.bionicturtle.com/premium/spreadsheet/7.a.1_raroc_crouhy/
The Altman text has something like yours for RAROC; i.e.,
net income / VaR
(and GARP really needs to reconcile these RAROCs...I will add to the "issues" list)
...but the exam has been following Crouhy's definition for (at least) a couple years, as reflected in the XLS:
numerator: loan revenue + return on economic capital (ROC) - interest expense on deposits (COF) - operating cost - Expected loss (EL)
denominator: economic capital
David
No, it's squarely in Credit & Ops L2 - David
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