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Research Topics in Economic Capital Modeling A Survey Course on Unresolved Modeling Issues

Presented by Dennis Glennon


The Economic Capital Models are used to quantify the risk of loss over a specific time horizon (i.e., one year). Banks, insurance companies, brokerage firms, and investment banks are becoming aware of the importance of using economic capital as the basis for making a wide variety of business decisions: pricing, capital allocation (especially among business lines), profitability analysis, capital budgeting, and risk and performance measurement (risk-adjusted performance). These models are constructed around estimates of loss distributions that depend on such risk "factors" as the probability of default, asset correlations, loss given default, and exposure at time of default. The accuracy of the economic capital model clearly depends on the reliability of the estimates of the risk factors. Data limitations and fundamental differences in model design have resulted in an array of modeling techniques that can be used to construct a useful economic capital model.

In this course, we will survey the various methods used to construct valid economic capital models. We will cover topics ranging from the fundamentals of model design, model development, and validation with special emphasis on detailed discussions on unresolved methodological issues. The focus will be on discussing alternative modeling approaches, assessing their strengths and weaknesses, and identifying the conditions under which a specific approach is preferred. In addition, we will discuss recent developments in econometric and statistical modeling techniques that may be useful for developing more accurate and reliable models.

Economic Capital modeling is an evolving area of research. As such, our goal is to identify interesting model design and estimation issues that warrant further research.

Registration and flyer can be downloaded.

24 July 2006 to 25 July 2006
City - Haymarket CB05D Level 1, Room 12
Conference Delegates
Please complete the Registration Form
Michelle Manion, Special Projects Officer

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