Crouhy, The Essentials of Risk Management: Chapter 17, is a 44-minute instructional video analyzing the following concepts:
* Define, compare and contrast risk capital, economic capital and regulatory capital, and explain the motivations for using economic capital.
* Describe the RAROC (risk-adjusted return on capital) methodology and its benefits.
* Compute and interpret the RAROC for a project, loan, or loan portfolio, and use RAROC to compare business unit performance.
* Explain the impact of changing assumptions used in calculating economic capital, including choosing a time horizon, measuring default probability, and choosing a confidence level.
* Calculate the hurdle rate and apply this rate in making business decisions using RAROC.
* Compute the adjusted RAROC for a project to determine its viability.
* Explain challenges in modeling diversification benefits, including aggregating a firm’s risk capital and allocating economic capital to different business lines.
* Explain best practices in implementing a RAROC approach