Correo Electrónico
DNINFOA - SIA
Bibliotecas
Convocatorias
Identidad U.N.
Published
On the Application of Corporate RAROC
Simplificando el RAROC corporativo
DOI:
https://doi.org/10.15446/rce.v49n2.125633Keywords:
Expected shortfall;, NLN;, RAROC;, Risk management. (en)Gestión de riesgos;, NLN; , Pérdida esperada; , RAROC. (es)
Downloads
RAROC (Risk-Adjusted Return on Capital) is widely used in financial _rms as a risk-adjusted profitability measure, but its adoption in non- financial firms remains limited. This paper reviews its shortcomings for non-financial companies and, based on recent empirical findings on the statistical distribution of long-term corporate profits, finds a RAROC-based capital allocation theorem that is applicable even with the restrictions faced by non-financial firms.
La metodología RAROC (Rentabilidad Ajustada por Riesgo sobre el Capital) ha alcanzado una amplia adopción entre las instituciones financieras. Sin embargo, su adopción en empresas no financieras sigue siendo limitada. Este trabajo examina las dificultades que previenen la aplicación del RAROC y basándose en recientes resultados empíricos sobre la distribución estadística de las utilidades corporativas encuentra que la toma de decisiones basada en RAROC es implementable incluso en contextos donde las empresas no pueden modelar directamente sus retornos ajustados por riesgo.
References
Acerbi, C. & Tasche, D. (2002), `Expected shortfall: A natural coherent alternative to value at risk', Economic Notes 31(2), 379-388.
Artzner, P., Delbaen, F., Eber, J.-M. & Heath, D. (2001), `Coherent measures of risk', Mathematical Finance 9(3), 203-228.
Basel Committee on Banking Supervision (1996), Amendment to the capital accord to incorporate market risks, Technical report, Bank for International Settlements. https://www.bis.org/publ/bcbs24.htm
Basel Committee on Banking Supervision (2010), Range of methodologies for risk and performance alignment of remuneration: Consultative document, technical report, Bank for International Settlements. https://www.bis.org/publ/bcbs178.htm
Basel Committee on Banking Supervision (2021), Instructions for Basel III monitoring, technical report, Bank for International Settlements.
Basel Committee on Banking Supervision (2023), Calculation of RWA for market risk: MAR33 internal models’ approach: Capital requirements calculation, technical report, Bank for International Settlements.
Froot, K. A. & Stein, J. C. (1998), `Risk management, capital budgeting, and capital structure policy for financial institutions: An integrated approach', Journal of Financial Economics 47(1), 55-82.
Graham, J. R. & Harvey, C. R. (2001), `The theory and practice of corporate finance: Evidence from the field', Journal of Financial Economics 60(2-3), 187-243.
Guill, G. (2016), `Bankers trust and the birth of modern risk management', Journal of Applied Corporate Finance 28(1), 19-29.
Holton, G. A. (2002), History of Value-at-Risk: 1922-1998, Working paper, Contingency Analysis. https://econwpa.ub.unmuenchen.de/econwp/mhet/papers/0207/0207001.pdf
James, C. (1996), RAROC Based Capital Budgeting and Performance Evaluation: A Case Study of Bank Capital Allocation, Technical report, Wharton Financial Institutions Center, University of Pennsylvania.
Koller, T., Goedhart, M. & Wessels, D. (2020), Valuation: Measuring and Managing the Value of Companies, 7 edn, John Wiley & Sons, Hoboken, NJ.
Markowitz, H. (1952), `Portfolio selection', Journal of Finance 7(1), 77-91.
McNeil, A. J., Frey, R. & Embrechts, P. (2005), Quantitative Risk Management: Concepts, Techniques and Tools, Princeton University Press, Princeton.
Oliver Wyman (2009), `Unmasking true performance through corporate RAROC', Oliver Wyman Insights. https://www.oliverwyman.com/ourexpertise/insights/2009/jul/unmasking-true-performance-through-corporateraroc.html
Rockafellar, R. T., Uryasev, S. & Zabarankin, M. (2002), Deviation measures in risk analysis and optimization, Technical Report Research Report No. 2002-7, University of Florida, Department of Industrial and Systems Engineering.
Siziba, S. & Hall, J. H. (2021), `The evolution of the application of capital budgeting techniques in enterprises', Global Finance Journal 47, 100504.
Tasche, D. (2007), Capital allocation to business units and sub-portfolios: The Euler principle, in `Pillar II in the New Basel Accord: The Challenge of Economic Capital', Risk Books, pp. 423-453. https://arxiv.org/pdf/0708.2542
Wibbens, P. D. (2025), `A simple law for the distribution of long-term profit: The empirical regularity behind the 1% of -rms that capture 73% of value', Organization Science 36(4), 1531-1550.
Yang, M. (2008), `Normal log-normal mixture, leptokurtosis and skewness', Applied Economics Letters 15(9), 737-742.
Zaik, E., Walter, J., Kelling, G. & James, C. (1996), `RAROC at Bank of America: From Theory to Practice', Journal of Applied Corporate Finance 9(2), 83-93.
How to Cite
APA
ACM
ACS
ABNT
Chicago
Harvard
IEEE
MLA
Turabian
Vancouver
Download Citation
License
This work is licensed under a Creative Commons Attribution 4.0 International License.
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
