Economic Capital: How It Works, and What Every Manager Needs to Know

By: Pieter Klaassen and Idzard Van Eeghen

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Synopsis: Managers can deploy and manage economic capital more effectively when they understand how their decisions add value to their organizations. Economic Capital: How It Works and What Every Manager Needs to Know presents new ways to define, measure, and implement management strategies by using recent examples, many from the sub-prime crisis. The authors also discuss the role of economic capital within the broader context of management responsibilities and activities as well as its relation to other risk management tools that are available to the modern risk manager. - Explains ways to use economic capital in balancing risk and return - Evaluates solutions to problems encountered in establishing an economic capital framework - Emphasizes intuition - Draws special attention to embedding risk modelling approaches within economic capital frameworks