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We present the formulas for the Operational Risk and Resiliency segment.
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Risk-Adjusted Return on Capital (RAROC)
RAROC = ( Risk Adjusted Return ) / ( Risk Adjusted Capital )
RAROC = [ Revenues – Costing – Taxation – Expected Losses + Return on Capital +/- Transfers ] / Risk Adjusted Capital
Adjusted RAROC = RAROC – β ( Market Return – Risk Free Rate )
Probability of Default
Default Probability = 1 – e lt
l = (Spread) / 1 – Recovery Rate
Worst Case Default Rate (WCDR)
WCDR = N * [ N-1 * ( PD ) + r½ * N-1 ( 0.999 ) / ( 1 – r )½ ]
rab = [ pab – ( pa * pb ) ] / [ pa * ( 1 – pa ) ] ½ * [ pb * ( 1 – pb ) ] ½
Liquidity Cost = ( Notional Amount X Spread Value ) / 2
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