Economic capital

Aug 11, 2020
1 min read

Updated: Jan 23

Economic capital is the market value of assets minus fair value of liabilities. Used in practice as a risk-adjusted capital measure; specifically, the amount of capital required to meet an explicit solvency constraint (e.g., a certain probability of ruin). [Source: Casualty Actuarial Society (CAS) Overview of Enterprise Risk Management]

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Risk-adjusted return on capital (RAROC)

Risk-adjusted return on capital (RAROC) is a target return on equity (ROE) measure in which the numerator is reduced depending on the risk associated with the instrument or project. In insurance indu

Risk-adjusted return on risk-adjusted capital (RARORAC)

Risk-adjusted return on risk-adjusted capital (RARORAC) is a combination of Risk-adjusted return on capital (RAROC) and Return on risk-adjusted capital (RORAC) in which both the numerator and denomina

Return on risk-adjusted capital (RORAC)

Return on risk-adjusted capital (RORAC) is a target return on equity (ROE) measure in which the denominator is adjusted depending on the risk associated with the instrument or project. [Source: Casu

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Economic capital

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