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Measuring Operational Risk in Financial Institutions
Company: Applied Financial Economics
Company Url: Click here to open
Year Of Publication: 2012
Month Of Publication: April
Resource Link: Click here to open
Pages: 1553-1569
Download Count: 0
View Count: 1275
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 5-19-2012
Publisher: Administrator
Summary
The scarcity of internal loss databases tends to hinder the use of the advanced approaches for operational risk measurement (Advanced Measurement Approaches (AMA)) in financial institutions. As there is a greater variety in credit risk modelling, this article explores the applicability of a modified version of CreditRisk+ to operational loss data. Our adapted model, OpRisk+, works out very satisfying Values-at-Risk (VaR) at 95% level as compared with estimates drawn from sophisticated AMA models. OpRisk+ proves to be especially worthy in the case of small samples, where more complex methods cannot be applied. OpRisk+ could therefore be used to fit the body of the distribution of operational losses up to the 95%-percentile, while Extreme Value Theory (EVT), external databases or scenario analysis should be used beyond this quantile.
(volume 22, number 18)
Author(s)
Plunus, Severine Sign in to follow this author
Hubner, George Sign in to follow this author
Peters, Jean-Philippe Sign in to follow this author
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