I
iwanttoqualify
Member
Hi,
I have a couple of questions which I'm hoping someone can help me with, which refer to Q1.14 in Q&A bank 1:
1) The answer (for part ii) would suggest that market risk on shareholder capital is allowed for, however credit risk on this capital is not (even though the capital is invested in A-rated loans) - is this correct, or have I misunderstood the solution?
2) Why is the 99% VaR held as capital and not the mean-VaR? Is it because a bank wouldn't hold the mean as reserves on their balance sheet for such losses? An insurance company for example would hold the mean (plus margin perhaps) as reserves, and the mean-VaR (again plus margin perhaps) as capital - is this different for a bank?
I have a couple of questions which I'm hoping someone can help me with, which refer to Q1.14 in Q&A bank 1:
1) The answer (for part ii) would suggest that market risk on shareholder capital is allowed for, however credit risk on this capital is not (even though the capital is invested in A-rated loans) - is this correct, or have I misunderstood the solution?
2) Why is the 99% VaR held as capital and not the mean-VaR? Is it because a bank wouldn't hold the mean as reserves on their balance sheet for such losses? An insurance company for example would hold the mean (plus margin perhaps) as reserves, and the mean-VaR (again plus margin perhaps) as capital - is this different for a bank?