Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions: An Integrated Approach / Kenneth A. Froot, Jeremy C. Stein.

Format:

Book

Author/Creator:

Froot, Kenneth A.

Contributor:

National Bureau of Economic Research.

Stein, Jeremy C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5403.

NBER working paper series no. w5403

Language:

English

Subjects (All):

Financial institutions--Management.

Financial institutions.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Cambridge, Massachussetts : National Bureau of Economic Research, [1996]

Summary:

We develop a framework for analyzing the capital allocation and capital structure decisions facing financial institutions such as banks. Our model incorporates two key features: i) value-maximizing banks have a well-founded concern with risk management; and ii) not all the risks they face can be frictionlessly hedged in the capital market. This approach allows us to show how bank-level risk management considerations should factor into the pricing of those risks that cannot be easily hedged. We examine several applications, including the evaluation of proprietary trading operations, and the pricing of unhedgeable derivatives positions.

Notes:

Print version record

January 1996.