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Risk adjusted performance measurement and capital allocation for trading desks within banks

Hein Ploegmakers (Limburg Institute of Financial Economics (LIFE), Maastricht University, PO Box 616 6200, MD, MAASTRICHT, The Netherlands)
Mark Schweitzer (Limburg Institute of Financial Economics (LIFE), Maastricht University, PO Box 616 6200, MD, MAASTRICHT, The Netherlands)
Alireza Tourani Rad (Department of Finance, School of Management Studies, Private Bag 3105, The University of Waikato, Hamilton, New Zealand)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 March 2000

Abstract

Compares four risk‐adjusted performance measures and explains their importance, to banking in particular. Applies the risk‐adjusted return on capital (RAROC) measure to five product classes at several branches of an international bank for six months, finds considerable differences between required and actual RAROCs and investigates the reasons why. Discusses both exogeneous factors (e.g. trading terms). Believes that banks can improve their internal capital markets by using risk‐adjusted performance measurement.

Keywords

Citation

Ploegmakers, H., Schweitzer, M. and Tourani Rad, A. (2000), "Risk adjusted performance measurement and capital allocation for trading desks within banks", Managerial Finance, Vol. 26 No. 3, pp. 39-50. https://doi.org/10.1108/03074350010766576

Publisher

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MCB UP Ltd

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