Open AccessBanking Firm, Equity and Value at Risk
Author(s) -
Удо Бролл,
Anna L. Sobiech,
Jack E. Wahl
Publication year - 2012
Publication title -
współczesna ekonomia
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.229
H-Index - 14
ISSN - 1897-9254
DOI - 10.5709/ce.1897-9254.67
Subject(s) - business , equity (law) , equity value , value (mathematics) , enterprise value , financial economics , financial system , monetary economics , economics , finance , debt , mathematics , political science , debt levels and flows , external debt , law , statistics
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