Banking Firm, Equity and Value at Risk

Contemporary Economics, Vol. 6, No. 4, pp. 50-53, 2012

4 Pages Posted: 10 Jan 2013

See all articles by Udo Broll

Udo Broll

Dresden University of Technology - Faculty of Economics and Business Management

Anna Sobiech

Dresden University of Technology

Jack E. Wahl

University of Dortmund - Department of Business

Date Written: December 7, 2012

Abstract

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.

Keywords: financial markets, equity capital, banking, value at risk (VaR), diversification, risk management, asset-liability management

JEL Classification: G21, G28

Suggested Citation

Broll, Udo and Sobiech, Anna and Wahl, Jack E., Banking Firm, Equity and Value at Risk (December 7, 2012). Contemporary Economics, Vol. 6, No. 4, pp. 50-53, 2012 , Available at SSRN: https://ssrn.com/abstract=2198322

Udo Broll (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Anna Sobiech

Dresden University of Technology ( email )

Einsteinstrasse 3
Dresden, 01062
Germany

Jack E. Wahl

University of Dortmund - Department of Business ( email )

WiSo-Pavillon
Otto-Hahn-Str. 6a
Dortmund, 44227
Germany
+49 231 755 5300 (Phone)
+49 231 755 5231 (Fax)

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