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Measuring Operational Risk in Financial Institutions: Contributions of Credit Risk Modeling
Year Of Publication: 2005
Month Of Publication: March
Pages: 29
Download Count: 864
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Comment Num: 0
Language: EN
Source: article
Who Can Read: Free
Date: 9-7-2005
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.
This document is published in Applied Financial Economics (volume 22, number 18), April 2012
http://dx.doi.org/10.1080/09603107.2012.667546
Author(s)
Hubner, George Sign in to follow this author
Peters, Jean-Philippe Sign in to follow this author
Plunus, Severine Sign in to follow this author
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