Spectral Risk Measures in RAROC: A Risk-Sensitive Framework for Risk-Adjusted Financial and Accounting Information — Evidence from the DAX 40

Abstract This research is devoted to the incorporation of Spectral Risk Measures (SRMs) into the Risk-Adjusted Return on Capital (RAROC) framework. In doing so we contribute to Accounting and Finance information for auditing, management accounting and investment purposes. We argue that this is particularly useful in times of crises, for instance due to systemic risk. Bearing in mind that traditional RAROC relies usually on Value-at-Risk (VaR) which is not coherent in general and can fail subadditivity when tails are very heavy (Danielsson et al., 2013), SRMs offer the desired properties of coherence when the included risk spectrum is admissible (see Acerbi, 2002). It also offers a tail-sensitive alternative that incorporates a user-specified degree of risk aversion. Considering the above we propose a methodology building on (Zachos, 2023 and Zachos, 2026). Moreover, we calculate SRM-based RAROC, VaR-based RAROC and we complement our work by calculating Expected Shortfall-based RAROC. For those calculations a twofold approach is suggested: one that is predominantly market-linked and one that is firm specific. To do so we utilize historical data of DAX 40 and the companies that constitute the index. Furthermore, we suggest certain occasions where the proposed RAROC version could be employed by accounting practitioners, financial analysts or investors. Finally, we examine the significance of the values that RAROC takes, depending on the risk measure that is used. JEL Classification Numbers: M41; G32; G22