Value at risk, Equity and Diversification

Udo Broll and Jack E. Wahl

No 03/06, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: The value at risk measure attempts to summarize in a single number market value risk of a portfolio of financial assets.The paper focuses on the interaction between the solvency probability of a bank, on one hand, and the diversification potential of its portfolio, on the other hand, when optimum endowment of equity capital is to be determined. Given the necessity to achieve some confidence level of solvency we demonstrate that diversification pays when optimizing the use of the equity resource.

Keywords: equity capital; banking; value at risk; diversification; risk management; asset-liability management (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:0306

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