February 2007
Intermediate to advanced
280 pages
15h 37m
English
Content preview from Value at Risk and Bank Capital Management
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CHAPTER
♦
8
Risk-Adjusted Performance Measurement
A risk-adjusted performance (RAP) measure is a profi tability measure that jointly takes
into consideration the margin or profi t produced by a business and its capital at risk (CaR).
As noted in Chapter 6, we use CaR to refer to a one-year equivalent (if translation from
subannual to annual data is necessary) of the VaR measures we discussed earlier in the
book.
Perhaps the most well-known RAP measure is RAROC (risk-adjusted return on
capital), which can generally be defi ned as the ratio between the profi t and CaR for a
given business area/unit. Another frequently used performance measure is Econom ...
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