The Risk Measurement Of Commercial Bank Business Based On RAROC Model

RAROC system is the core way of Enterprise-Wide Management, which is core method used by international banks in business management. RAROC system turn future expected losses caused by risk into currently cost. The denominator of the RAROC equation measures the capital required to absorb the unexpected loss. RAROC makes revenue related with risk directly through measuring risk-adjusted return on capital. RAROC system supplies a standard criterion for business decisions, development strategy, risk management and performance evaluation in all level of bank.This article puts forward the ideal of systematic measuring and conformity of returns, costs, expected loss and unexpected loss under the RAROC model. That unifies the product pricing, performance measuring and economic capital allocation in RAROC model and forms the perfect risk management system of commercial bank.On the basis of Chinese empirical researches of EDF model, selecting related data of firms listed in Chinese stock markets from 2003 to 2006, the third chapter tries to establish Chinese EDF experiential function, and tests the predictive ability and stability of EDF model by method of pilot test. Empirical result shows that EDF model can predict the deterioration in credit quality of firms one or two years before they default and it has good stability in measuring the credit risks of public company. The results indicate that it is feasible to apply EDF model in Chinese commercial banks.The forth chapter introduces the capital measurement of Basel II into RAROC system and uses the Asymptotic Single Risk Factor model to resolve the question of stand-alone risk measurement of single business and the whole risk measurement of the bank.Finally, on the basis of particular discussing of input variables of RAROC model the article puts forward a feasible form to make the RAROC system according to the real situation of Chinese economy and commercial bank.