The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance

Porteous, Bruce and Tapadar, Pradip (2008) The Impact of Capital Structure on Economic Capital and Risk Adjusted Performance. ASTIN Bulletin, 38 (1). pp. 341-380. ISSN 0515-0361 . (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.2143/AST.38.1.2030416

Abstract

The impact that capital structure and capital asset allocation have on financial services firm economic capital and risk adjusted performance is considered. A stochastic modelling approach is used in conjunction with banking and insurance examples. It is demonstrated that gearing up Tier 1 capital with Tier 2 capital can be in the interests of bank Tier 1 capital providers, but may not always be so for insurance Tier 1 capital providers. It is also shown that, by allocating a bank or insurance firm’s Tier 1 and Tier 2 capital to higher yielding, more risky assets, risk adjusted performance can be enhanced. These results are particularly pertinent with the advent of the new Basel 2 and Solvency 2 risk based capital initiatives, for banks and insurers respectively.

Item Type: Article
Uncontrolled keywords: asset allocation; capital gearing; economic capital; financial services firms risk adjusted performance; stochastic models; Tier 1 and Tier 2 capital
Subjects: Q Science > QA Mathematics (inc Computing science)
Divisions: Faculties > Science Technology and Medical Studies > School of Mathematics Statistics and Actuarial Science > Actuarial Science
Depositing User: Pradip Tapadar
Date Deposited: 18 Apr 2009 09:27
Last Modified: 19 Aug 2009 11:36
Resource URI: http://kar.kent.ac.uk/id/eprint/14620 (The current URI for this page, for reference purposes)
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