A new option approach to risk assessment and capital requirement

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Project objective

The aim of this project is to advance and analyse a new model of market exposure of both banks and regulatory authorities. The research proposal sets out to apply the most flexible hedging tools, options, to measure market risk and determine capital requirement in the spirit of Merton (1995). Capital requirement can be assessed as the price of an insurance against any loss. All the assets in a portfolio will be assessed jointly in terms of the price of an option that hedge the portfolio's value. The theoretical model is a framework to price this global" option on a generic asset's portfolio. This new approach tries to overcome the severe limitations of the traditional approaches. The applicability of this model will be assessed empirically: - calculating the option value of the risk on actual portfolios. - comparing this approach with the traditional approaches. 1. becoming a high level specialist in regulatory and risk assessment, 2. linking my two fields of expertize: options and asset and liability management, 3. good training on: exotic option pricing, especially options on a book of assets, regulatory capital requirement and risk assessment, Collaboration with the TREND's network bank Relevance for European Banks and regulatory authorities "

Original text from CORDIS.

Participants

• London Business School · LondonCoordinatorUnited Kingdom
• Not availableCity levelItaly

Links

• View on CORDIS