Implementing loss distribution approach for operational risk
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Publication:3103153
Abstract: To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved to use the approach in practice. In this paper we review the quantitative methods suggested in literature for implementation of the approach. In particular, the use of the Bayesian inference method that allows to take expert judgement and parameter uncertainty into account, modeling dependence and inclusion of insurance are discussed.
Recommendations
- Modelling operational risk using Bayesian inference.
- Operational risk modelling and management.
- A Bayesian approach to estimate the marginal loss distributions in operational risk management
- A PIECEWISE-DEFINED SEVERITY DISTRIBUTION-BASED LOSS DISTRIBUTION APPROACH TO ESTIMATE OPERATIONAL RISK: EVIDENCE FROM CHINESE NATIONAL COMMERCIAL BANKS
- Numerical modelling of operational risks for the banking industry
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Cited in
(23)- Modelling of a loss distribution ansatz in the frame of the advanced measurement approach for optional risk under Basel II.
- Practices and issues in operational risk modeling under Basel II
- A nonparametric operational risk modeling approach based on Cornish-Fisher expansion
- USING WEIGHTED DISTRIBUTIONS TO MODEL OPERATIONAL RISK
- Approximation of aggregate and extremal losses within the very heavy tails framework
- Numerical modelling of operational risks for the banking industry
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- Bayesian copulae distributions, with application to operational risk management
- Measuring of inferred loss rate with application to capital adequacy
- The optimal operational risk capital requirement by applying the advanced measurement approach
- A Bayesian approach to estimate the marginal loss distributions in operational risk management
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- Bayesian model choice of grouped \(t\)-copula
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- Analytic loss distributional approach models for operational risk from the \(\alpha\)-stable doubly stochastic compound processes and implications for capital allocation
- Robust quantification of the exposure to operational risk: bringing economic sense to economic capital
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