A Capital Adequacy Buffer Model

In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model which measures distance to default and the timeless capital asset pricing model (CAPM) which measures additional returns to compensate for additional share price risk.

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Year of publication:	2013
Authors:	Allen, David Edmund ; McAleer, Michael ; Powell, Robert J. ; Singh, Abhay K.
Institutions:	Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid
Subject:	Credit risk \| Capital buffer \| Distance to default \| Conditional value at risk \| Capital adequacy buffer model

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Extent:	application/pdf
Series:	Documentos de Trabajo del ICAE.
Type of publication:	Book / Working Paper
Notes:	The authors wish to thank the Australian Research Council, Edith Cowan University Faculty of Business and Law Strategic Research Fund, and the National Science Council, Taiwan, for financial assistance. Number 2013-33 15 pages
Classification:	G01 - Financial Crises ; G21 - Banks; Other Depository Institutions; Mortgages ; G28 - Government Policy and Regulation
Source:	RePEc - Research Papers in Economics

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