Learning Objective 5: Capital Management


Learning Objectives:
The candidate will understand the concept of economic capital, risk measures in capital assessment and techniques to allocate the cost of risks within business units.

Learning Outcomes:
The candidate will be able to:

a) Describe the concepts of measures of value and capital requirements (for example, EVA, embedded value, economic capital, regulatory measures, and accounting measures) and demonstrate their uses in the risk management and corporate decision-making processes.

b) Define the basic elements and explain the uses of economic capital. Explain the challenges and limits of economic capital calculations and explain how economic capital may differ from external requirements of rating agencies and regulators.

c) Apply risk measures and demonstrate how to use them in capital assessment. Contrast regulatory, accounting, statutory and economic capital.

d) Propose techniques for allocating /appropriating the cost of risks/capital/hedge strategy to business units in order to gauge performance (risk adjusted performance measures).

e) Demonstrate the ability to develop a capital model for a representative financial firm.

*Updated for Spring 2018 Sitting