Bank Management

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c) Risk Transformation Via secondary markets: Prof. Dr. Hans-Peter Burghof, University of Hohenheim, Bank Management Portfolio diversification: (stock) exchange or funds Limiting risk by using financial derivates Via financial intermediaries: Portfolio diversification and available net equity of a bank or insurance company Banks as “delegated monitor“ and “delegated contractor“ Implementation by banks: Risk management 6
Idealized Model Calculation Arrow-Debreu-Model: Prof. Dr. Hans-Peter Burghof, University of Hohenheim, Bank Management - 4 states with identical probability - 2 financial assets (A1 and A2) - Utility functions U or V - Amount of investment: 100 state: s1 s2 s3 s4 A1 x11 = 130 x12 = 130 x13 = 90 x14 = 90 A2 x21 = 160 x22 = 60 x21 = 160 x22 = 60 U x U(Al) 11,40 11,40 9,49 9,49 U(A2) 12,65 7,75 12,65 7,75 E(U(A1)) = 10,44 E(U(A2)) = 10,20 V x x 5 x 100 otherwise V(A1) 11,40 11,40 4,49 4,49 V(A2) 12,65 2,75 12,65 2,75 E(V(A1)) = 7,94 E(V(A2)) = 7,70 7
Page 1 and 2: Contents Prof. Dr. Hans-Peter Burgh
Page 3 and 4: Prof. Dr. Hans-Peter Burghof, Unive
Page 5: Prof. Dr. Hans-Peter Burghof, Unive
Page 9 and 10: Prof. Dr. Hans-Peter Burghof, Unive
Page 11: Exercise on Risk Transformation Pro

Bank Management

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