A Study To Determine The Economic Capital With Monte Carlo Method

In the new Basel Capital Accord regulatory framework, the amount of capital that a bank own determines the capacity to resist risks and market competitiveness. Capital management is one of the central elements as the management of advanced international banks. In China, in the process of transforming to modern commercial banks, using the advanced management philosophy to establish the capital management system is the inevitable choice in the development process. For commercial banks, credit risk has great effect not only on the safety and management efficiency of the banks but also on the stability of the whole financial system. Credit risk has always played important role in commercial bank management. For managing credit risk, commercial banks have created many methods to measure credit risk, by which commercial banks decrease credit risk loss. With the coming of finance innovation surge, more and more credit product transacting in commercial banks, credit risk is becoming more and more complex. Commercial banks are cry for advanced measuring methods on credit risk. Credit Risk Measuring Model is developing forward to quantitative, accurate and easy using. Many finance institution have researched advanced to measure credit risk, in which more and more modern PC technology was used. Based on the latest research of our team on credit risk, we put forward to a new kind of method to measure and manage credit risk, the application of Monte Carlo simulation in credit risk measurement.In the former 2 chapters, we introduced our value of this paper and the background of our research. We describe the characteristics of economic capital clearly; explain the importance of credit risk management. In the third chapter, we introduce and analyze the methods of the Monte Carlo simulation in credit risk management. In the fourth chapter, the innovation of the paper, we introduce our method of the simulation of economic capital. Last, we check and demonstrate our model of credit risk measurement. We give some advances on how to management credit risk for our commercial banks.