raroc

pymc_marketing.mmm.utility.raroc(risk_free_rate=0.0)

Calculate the Risk-Adjusted Return on Capital (RAROC).

RAROC measures the efficiency of capital utilization by assessing the return generated above a risk-free benchmark, normalized by the capital at risk. This metric provides insight into the value created by taking on additional risk, relative to a safe investment.

The Risk-Adjusted Return on Capital (RAROC) is calculated as:

\[RAROC = \frac{\mathbb{E}[R] - R_f}{C}\]

where:

• \(\mathbb{E}[R]\) is the expected return (mean of samples).

• \(R_f\) is the risk-free rate.

• \(C\) is the capital at risk.

Parameters:

risk_free_ratefloat, optional

The rate of return on a risk-free investment, such as a government bond, used as a baseline for measuring excess returns (default is 0.0).

Returns:

UtilityFunctionType

A function that calculates the RAROC value given samples and budgets.

References

[1]

Matten, C. (2000). Managing Bank Capital: Capital Allocation and Performance Measurement.