An Analysis Framework for Bank Capital Allocation

Thierry Roncalli, Nicolas Baud, Antoine Frachot, Philippe Igigabel, Pierre Martineau
1999 Social Science Research Network  
In this paper, we present a methodology for capital adequacy. Capital adequacy in a bank could be viewed as an asset allocation problem. Therefore it is possible to use the framework of the portfolio theory. But it requires to estimate the correlation matrix of the business line returns. In this work, we estimate this correlation matrix by using a factor model based on external data. In a second part of this article, we provide some illustrations to rebalance optimally the capital allocation within the bank.
doi:10.2139/ssrn.1031933 fatcat:id575m326vc3loyxxh2alidwni