Hey all!
I assume that guys in Asset Management knows something about RAROC. (Risk-adjusted return on capital) Expect return/ VaR
How does your firm implement RAROC ? or allocate VaR in relation with expect returns. What is a good RAROC ratio on a position or a portfolio ?
I would appreciate any insight you guys may have into this.
A lot of the DCM guys use RAROC too. Banks look at RAROC when they lend so anyone doing relationship lending would use it
Should RAROC calculation include capital benefits? (Originally Posted: 01/10/2018)
Hi all!
Quick question on RAROC calculation.
In the real life, do banks include capital benefits in the numerator of RAROC?
If so, they are assuming that the entire operation is being funded with debt (ie without capital). If not, they are assuming that the operation is being funded both with debt and with capital. In the latter, where should one compute the capital gains from the liquidity buffer?
Many thanks
André
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