Economic capital / Other risks [18]

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Bullet points include: Peer group approach: look at capital/asset ratios of monoline firms corresponding to each business division Stand-alone default probability approach: for each business line define Z ratio (i.e. no of std. deviations to point at which capital is exhausted) Marginal VaR (aka Internal beta) approach: assuming Normality ‘Marginal’ capital approach: change in total firm capital if entire business line is dropped. Most appropriate if big perturbation, e.g. divestiture or acquisition, being considered

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