Risk-Adjusted Return on Capital

From Open Risk Manual


Risk-adjusted Return on Capital (RAROC) denotes a profitability measurement metric (and associated framework) for analysing financial performance in business models involving the explicit underwriting of risk (banking, insurance etc). RAROC is defined as the ratio of expected return to Economic Capital


RAROC metrics can be used to aid assessment of individual transactions or the performance of entire portfolios or business lines.

See Also