Abstract

In this paper, we develop a new capital adequacy buffer model (CABM) which is sensitive to dynamic economic circumstances. The model, which measures additional bank capital required to compensate for fluctuating credit risk, is a novel combination of the Merton structural model which measures distance to default and the timeless capital asset pricing model (CAPM) which measures additional returns to compensate for additional share price risk.

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Tinbergen Institute
hdl.handle.net/1765/50286
Tinbergen Institute Discussion Paper Series
Tinbergen Institute Discussion Paper Series
Erasmus School of Economics

Allen, D., McAleer, M., Powell, R., & Singh, A. (2013). A Capital Adequacy Buffer Model (No. TI 13-168/III). Tinbergen Institute Discussion Paper Series (pp. 1–18). Retrieved from http://hdl.handle.net/1765/50286