A Markov Model for Risk Evaluation in Banking

Juan Reboredo

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper presents a useful theoretical and empirical modelling for a probabilistic evaluation of the bank risk states. Bank riskiness is related to a stochastic recursive profit function from which different positions arise. Provided that the bank's decision maker objective is to maximise a function of a discounted stream of profits by making portfolio decisions, the transition probabilities among the different considered risk states are determined by those decicions, and draw the probabilities evolution over time of the different banks' risk states.

Keywords: BANKS; RISK (search for similar items in EconPapers)
JEL-codes: C23 C51 C53 D81 G21 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:383.97

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