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The Essentials of Risk Management, Second Edition, 2nd Edition by Robert Mark, Dan Galai, Michel Crouhy

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17

RISK CAPITAL ATTRIBUTION AND RISK-ADJUSTED PERFORMANCE MEASUREMENT

Our final chapter takes a look at the roles of risk capital and at how risk capital can be attributed to business lines as part of a risk-adjusted performance measurement (RAPM) system. This problem brings together many of the themes discussed earlier in the book. RAPM represents a key challenge for financial institutions and nonfinancial firms around the world today. Only by forging a connection between risk measurement, risk capital, risk-based pricing, and performance measurement can firms ensure that the decisions they take reflect the interests of stakeholders such as bondholders and shareholders.

What Purpose Does Risk Capital Serve?

Risk capital is the cushion that provides ...

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