C.H. Fouche, M.A. Petersen, and J. Mukuddem-Petersen (South Africa)
Bank Valuation; Profit; Depreciation; Value at Risk (VaR).
Our aim is do a bank valuation by considering its cash flow that is, in turn, calculated via banking profit and depreci ation. The Basel II capital accord permits a modeling ap proach to capital adequacy, by which banks are allowed to use their internal Value-at-Risk (VaR) models to help de termine their capital requirements. In this regard, we inves tigate a risk model for the value of a bank that is able to in vest in loans and Treasuries. The loan price process and the total depreciation is modeled via an exponential L´evy pro cess and a compound Poisson process, respectively. These models lead to the formulation of a bank value maximiza tion problem subject to a risk constraint on the VaR. Our investigation concludes with a brief analysis of the main banking valuation issues.
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