Organising the allocation
Capital allocation is an important quantitative methodology that affects a bank’s risk-taking behaviours and business strategies. Yadong Li, Marco Naldi, Jeffrey Nisen and Yixi Shi propose a new capital allocation method that offers stability, fairness, computational efficiency and better business incentives, when compared with existing methods
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In the wake of the financial crisis of 2008, regulators around the globe started to strengthen regulatory capital requirements, aiming to limit systemic risk by reining in the aggressive risk-taking behaviours of banks. Under the tightened regulations, banks are required to raise more capital than in the precrisis era to support similar business activities. In response to the growing regulatory capital pressure, banks are aggressively repositioning themselves by
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