Economic Capital

1st Edition

How It Works, and What Every Manager Needs to Know

Authors: Pieter Klaassen Idzard van Eeghen
Hardcover ISBN: 9780123749017
eBook ISBN: 9780080956800
Imprint: Elsevier Science
Published Date: 23rd June 2009
Page Count: 304
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Description

Managers can deploy and manage economic capital more effectively when they understand how their decisions add value to their organizations. Economic Capital: How It Works and What Every Manager Needs to Know presents new ways to define, measure, and implement management strategies by using recent examples, many from the sub-prime crisis. The authors also discuss the role of economic capital within the broader context of management responsibilities and activities as well as its relation to other risk management tools that are available to the modern risk manager.

Key Features

    • Explains ways to use economic capital in balancing risk and return
    • Evaluates solutions to problems encountered in establishing an economic capital framework
    • Emphasizes intuition
    • Draws special attention to embedding risk modelling approaches within economic capital frameworks

    Readership

    Senior managers in banks, insurers, supervisors and regulators, risk professionals, and analysts

    Table of Contents

    Chapter 1: Measuring the Unexpected: Understanding Economic Capital

    Chapter 2: Show Me the Money: The Purpose of Economic Capital

    Chapter 3: You Manage What You Measure: Defining Economic Capital

    Chapter 4: Running the Numbers: Measuring Economic Capital

    Chapter 5: Facing Reality: Implementing Economic Capital

    Chapter 6: Team play: Economic Capital and its Context

    Chapter 7: What’s Next? The Future of Economic Capital

    Details

    No. of pages:
    304
    Language:
    English
    Copyright:
    © Elsevier Science 2009
    Published:
    Imprint:
    Elsevier Science
    eBook ISBN:
    9780080956800
    Hardcover ISBN:
    9780123749017

    About the Author

    Pieter Klaassen

    By Pieter Klaassen, Managing Director of Firmwide Risk Aggregation at UBS A.G. He holds a PhD in operations research from the MIT Sloan School of Management. He has global responsibility for development and refinement of economic capital models for credit, country, market, operational, interest-rate and business risk. In this position he has close interaction with business, finance, ALM and other risk management departments concerning the application of these models for performance, risk, portfolio and capital management. He is also responsible for quantification of EC for additional risks, and establishment of internal capital adequacy assessment and global responsibility for development and refinement of the bank’s counterparty exposure methodologies for derivatives.

    Affiliations and Expertise

    Managing Director of Firmwide Risk Aggregation at UBS A.G. He holds a PhD in operations research from the MIT Sloan School of Management.

    Idzard van Eeghen

    Idzard van Eeghen is Group Senior Vice President of Integrated Risk Management at ABNAMRO Bank N.V. Mr. Eeghen holds two degrees: masters in economics and masters in financial economics. In his current position he is responsible for managing the Group’s country risk exposure; policies and use of economic capital including stress testing and loan pricing tools; risk disclosure; development and introduction of Enterprise Risk Management (ERM).

    Affiliations and Expertise

    Group Senior Vice President of Integrated Risk Management at ABNAMRO Bank N.V. Mr. Eeghen holds two degrees: masters in economics and masters in financial economics.

    Reviews

    "Finally, a book that goes beyond an academic explanation of economic capital, but one that actually explains how to use it.  And the timing couldn’t be better.  Whether you are planning to upgrade your existing EC program or implementing a new one, Pieter Klaassen and Idzard van Eeghen have provided a wealth of ideas to guide practitioners through the many complex dilemmas that need to be navigated."

    --Terry Bulger, EVP, Risk Analytics & Portfolio Management, Bank of Montreal

    Klaassen and van Eeghen provide the first comprehensive treatment of the challenging subject of economic capital attribution and performance measurement. This book will undoubtedly become the ultimate reference for board of directors, senior management and risk professionals who are concerned about the survival of their firm from a solvability, performance and funding liquidity point of view, in the light of the recent events.

    --Michel Crouhy, Head of Research & Development, NATIXIS

    "This book is an extremely useful guide. It is written from a practitioner's viewpoint, which makes it especially practical; there is a refreshing absence of mathematical formulae, and academic discussions are quickly summarized, but there are plenty of references and footnotes for those who want to delve into these points deeper. The authors have sensibly avoided producing an orthodox "this is the right way to do it" rulebook, and clearly set out the different design choices that have to be made. I recommend this book to anyone interested in implementing or just studying economic capital."

    --Chris Matten, Partner, PricewaterhouseCoopers LLP

    "As the authors state rightly: "risks are not managed by models, but by people". With the increased importance of economic capital models for the management of financial institutions, senior managers need to understand clearly the concepts, assumptions, and limitations of these model