"The book should be required reading for anyone who is in a decision-making
position at financial institutions... Economic Capital A Practitioner Guide is destined to
be the gold standard reference book in this arena. I highly and unreservedly recommend
it."
John Mingo, Managing Director, Mingo & Co., Formerly, Senior Advisor, Board of
Governors, Federal Reserve System
"The methodologies for developing and implementing economic capital will be further
improved over time, making Economic Capital a standard tool for risk and capital
management."
Hubert Mueller, Principal, Towers Perrin
This new multi-contributor title will enable you to better analyse and evaluate economic
capital in order to implement more effective risk management strategies within your
business. Economic Capital is the definitive reference on this increasingly important area
of finance.
Explains the fundamental elements within economic capital and provides detailed
instruction on its strategic implementation
Contains three distinct and accessible sections:
- Economic Capital: Concepts and Applications
- Economic Capital for Specific Risks
- Economic Capital Methodologies: Mathematical Treatment
- Contains global insights from the leading experts at the forefront of economic capital
research and implementation - providing you with a holistic and comprehensive
multi-perspective view of all the key issues involved
Includes a detailed assessment of the latest Basel Accord and its likely implications on
your business with relation to economic capital
- Each chapter is designed to be accessible for practitioners at all levels
- Illustrates how economic capital management can maximise shareholder value
- Provides methodologies that allow you to take the cost of risk into account when
planning future strategies, by clarifying which ventures create the most value
- Will enable you to better quantify the risks you face and calculate both the capital
needed to cover them, should any unforeseen events occur, and the real returns being made
- Illustrates the role of economic capital in performance evaluation, and highlights where
it is possible to earn more money without an initial investment
- Will help you reassess your investment strategies whilst making better operational
choices in key business decisions such as pricing and capital allocation
Table of contents
Introduction
Ashish Dev (KeyCorp)
Section 1: ECONOMIC CAPITAL: CONCEPTS AND APPLICATIONS
1. Background on Economic Capital
John Walter (Bank of America)
2. Volatility and Capital: Measures of Risk
Gary Wilhite (Wachovia)
3. Conceptual Framework for Economic Capital Models and Required Inputs
Michel Araten (JPMorgan Chase)
4. Recovery Risk and Economic Capital
Jon Frye (Federal Reserve Bank of Chicago)
5. The Significance of Economic Capital to Financial Institutions
Vandana Rao (Indiana University East)
Section 2: ECONOMIC CAPITAL FOR SPECIFIC RISKS
6. Economic Capital for Retail Credit Card Portfolios
Geoff Rubin (Capital One)
7. Economic Capital for Counterparty Credit Risk
Evan Picoult; David Lamb (Citigroup, Morgan Stanley)
8. Economic Capital for Securitisations
Michael Pykhtin (KeyCorp)
9. Economic Capital for Market Risk
David R. Koenig (PRMIA)
10. Measuring and Calculating Economic Operational Risk Capital
Anthony Peccia (RCM Risk Management)
Section 3: ECONOMIC CAPITAL METHODOLOGIES: MATHEMATICAL TREATMENT
11. A Fundamental Look at Economic Capital and Risk-Based Profitability Measures
Sebastian Fritz, Michael Kalkbrener and Wilfried Paus (Deutsche Bank AG)
12. A Risk-Factor Model Foundation for Ratings-Based Bank Capital Rules
Michael B. Gordy (Board of Governors of the Division of Research and Statistics and
Federal Reserve System)
13. Allocating Portfolio Economic Capital to Sub-Portfolios
Dirk Tasche (Deutche Bundesbank)
14. Spectral Capital Allocation
Ludger Overbeck (University of Giessen)
15. Evaluating Design Choices in Economic Capital Modelling: A Loss Function Approach
Nick Keifer; Eric Larson (Cornell University; Office of the Controller of the Currency)
332 pages, Hardback
Author biography
Ashish Dev is executive vice president of risk management, at KeyCorp. He
is group head of Enterprise Risk Management, which includes economic capital allocations,
Basel II coordination, data warehousing, credit underwriting models, strategic analytics
and credit portfolio management along with operational risk. As a member of all the three
high-level risk committees of KeyCorp viz. ALCO, CREDCO and ORCO, he is involved in
decision making in all areas of risk in the bank. Ashish has been the prime mover in
establishing enterprise-wide risk-adjusted product pricing and performance measurement and
in creating a new credit portfolio management function in the bank. Prior to joining
KeyCorp, Ashish was head of quantitative research and analysis in Bank One. Ashish has a
PhD in economics and holds the CFA professional designation.
