Calculating Economic Capital – Using Leverage ratio So far we have presented two methods for estimating Economic Capital. The first uses the worst case change in Shareholders equity, the second the volatility of the same changes. The challenge with method one and two is that
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Calculating Economic Capital – Using Volatility In our first method presented earlier for calculating economic capital we used the historical worst case shift. In method two we use volatility. Method two is a variation designed to provide additional flexibility in estimating probability of capital shortfall in the
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