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Goodness-of-Fit Tests and Selection Methods for Operational Risk
Year Of Publication: 2014
Month Of Publication: May
Resource Link: Click here to open
Pages: 28
Download Count: 0
View Count: 1226
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-7-2014
Publisher: Administrator
Summary
Within the LDA framework, the required capital is the 99.9% Value-at-Risk of the annual loss distribution which is based on the fit of severity and frequency distributions using internal data. Supervisory guidelines for the AMAs address the issue of the sensitivity of goodness-of-fit (GOF) tests to the sample size, the number of parameters estimated and to the tail of the distributions. They suggest that a bank should consider selection methods that use the relative performance of the distributions at different confident levels. We investigate selection methods such as the Bayesian Information Criterion and the violation ratio as alternatives to the GOF tests. Attention is also given to the main properties of the usual GOF tests performed in operational risks in order to figure out the cases where the sensitivity raised by the guidelines is encountered and if those tests could be reliable though.
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Author(s)
Leherisse, Vincent Sign in to follow this author
Lavaud, Sophie Sign in to follow this author
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