A real options approach for evaluating the implementation of a risk‐sensitive capital rule in banks

Kjell Bjørn Nordal

Review of Financial Economics, 2009, vol. 18, issue 3, 132-141

Abstract: I evaluate a bank's incentives to implement a risk‐sensitive regulatory capital rule. The decision making is analyzed within a real options framework where optimal policies are derived in terms of threshold levels of credit risk. I provide a numerical example for the implementation of internal ratings based models for credit risk (the IRB approach) under the new Basel Accord (Basel II).

Date: 2009
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https://doi.org/10.1016/j.rfe.2009.04.002

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Journal Article: A real options approach for evaluating the implementation of a risk-sensitive capital rule in banks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:18:y:2009:i:3:p:132-141

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