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Advanced Operational Risk Modelling in Banks and Insurance Companies
Company: Investment Management and Financial Innovations
Company Url: Click here to open
Year Of Publication: 2009
Month Of Publication: September
Pages: 73-83
Download Count: 4
View Count: 1733
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 8-27-2012
Publisher: Administrator
The aim of this paper is to measure operational risk in financial institutions when historical data are available starting from a fixed threshold. To quantify the operational risk we apply the Loss Distribution Approach (LDA), a frequency/severity approach widely used in the actuarial models. Risk measures like Value at Risk (VaR) and Expected Shortfall (ES) are used for determining the risk capital necessary to cover the operational risk. The dependence among the events in the operational risk management has been taken into account using copula functions. We employed for this purpose the Student copula, which is widely used in financial modelling. Extreme Value Theory (EVT) has been used to model the right tail of the severity of loss distributions. The Expectation and Maximization (EM) algorithm has been applied to estimate the parameters of the frequency and severity of loss distributions when only their left truncated distributions are available.
(volume 6, number 3)
Angela, Carla Sign in to follow this author
Bisignani, Rossella Sign in to follow this author
Masala, Giovanni Sign in to follow this author
Micocci, Marco Sign in to follow this author
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