Risk‐Based Capital Allocation Using a Coherent Measure of Risk
This article outlines a procedure for quantifying risk‐adjusted capital reserves that may be used for both performance evaluation and capital allocation. The author identifies and quantifies the sources of risk capital that must be addressed, to cover current investment and withstand market shocks, for any business line that exhibits earnings volatility. The author classifies risk capital into two types: market‐risk capital and earnings volatility‐related capital. Market risk capital may be divided into two categories; risks due to “normal” or “diffusion” type price movements and catastrophic moves or “stress” events. In contrast, earnings volatility‐related capital is directly related to the firm's equity‐at‐risk, in the event that market shocks lead to sustained earnings volatility. The author suggests that these risk‐adjusted capital measures may be used as a benchmark, in conjunction with net earnings, to evaluate performance, or to allocate equity capital across different operations within a firm.
Building a Coherent Risk Measurement and Capital Optimisation Model for Financial Firms
In this paper, the authors consider how risk measures, based on internal models of this type, might be integrated into a firm's own methodology for allocating risk capital to its individual business units and for determining its optimal capital structure. They also consider the implications of these developments for the future approach to determining regulatory capital requirements.
A quantitative measure of nitrifying bacterial growth.
Nitrifying bacteria convert ammonia (NH3) to nitrate (NO3-) in a nitrification reaction. Methods to quantitatively separate the growth rate of these important bacterial populations from that of the dominant heterotrophic bacteria are important to our understanding of the nitrification process. The changing concentration of ammonia is often used as an indirect measure of nitrification but ammonification processes generate ammonia and confound this approach while heterotrophs remove nitrate via denitrification. Molecular probe methods can tell us what proportion of the microbial community is nitrifying bacteria but not their growth rate. The technique proposed here was able to quantify the growth rate of the nitrifying bacterial populations amidst complex ecological processes. The method incubates [methyl-3H] thymidine with water samples in the presence and absence of an inhibitor of nitrification-thiourea. The radioactively labeled DNA in the growing bacteria was extracted. The rate of incorporation of the label into the dividing bacterial DNA was used to determine bacterial growth rate. Total bacterial community growth rates in full-scale and pilot-scale fixed-film nitrifying reactors and an activated sludge reactor were 2.1 x 10(8), 4.1 x 10(8) and 0.4 x 10(8)cell ml(-1)d(-1), respectively; the growth rate of autotrophic-nitrifying bacteria was 0.7 x 10(8), 2.6 x 10(8) and 0.01 x 10(8)cell ml(-1)d(-1), respectively. Autotrophic-nitrifying bacteria contributed 30% and 60% of the total bacterial community growth rate in the nitrifying reactors whereas only 2% was observed in the activated sludge reactor that was not designed to nitrify. The rates of ammonia loss from the nitrifying reactors corresponded to the rate of growth of the nitrifying bacteria. This method has the potential to more often identify factors that enhance or limit nitrifying processes in both engineered and natural aquatic environments.