Understanding Economic Capital
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Get full access to all Data Science, Machine Learning, and AI courses built for finance professionals.
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A step-by-step guide covering Python, SQL, analytics, and finance applications.
Or create a free account to access more
Economic capital is a measure of risk, not of capital held. As such, it is distinct from familiar accounting and regulatory capital measures.
Conceptually, economic capital can be expressed as protection against unexpected future losses at a selected confidence level. It is defined as a capital required to absorb the impact of unexpected losses during a time horizon at a certain level of confidence.
The below presentation on Economic Capital by Jennifer Lang summarizes the concept of economic capital.