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What is RAROC Calculation in Banking Explained about?

RAROC is used to measure risk-adjusted performance and determine if a loan or investment is value-adding. It is calculated by dividing adjusted income by capital at risk. Adjusted income considers direct income, fees, expected losses, and operating costs. Capital at risk can be measured using either a market-based approach considering duration and changes in credit spreads, or an experientially-based approach using loss given default, exposure, and default rate volatility. The RAROC is then compared to the

Author

Diptiranjan Panda

Language

EN