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Tests of Extreme Value Theory Applied to Operational Risk Data
Company: Sanpaolo IMI
Year Of Publication: 2005
Month Of Publication: September
Pages: 19
Download Count: 908
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Comment Num: 0
Language: EN
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Who Can Read: Free
Date: 9-15-2005
Publisher: Administrator
Summary
In this paper we test the applicability of the asymptotic Extreme ValueTheory (EVT) to Operational Risk data. We performed the analysis ina so called controlled environment (i.e., an environment in which everything is a priori known) consisting of a lognormal severity distributionand a Poisson frequency distribution, chosen to reproduce the featuresobserved in Operational Risk loss data. We show how the use of theEVT in this case could lead to a substantial overestimate of the riskfigures. In addition, we test the application of the same EVT scheme inthe case of a Generalised Pareto Distribution (GPD) and a Poisson frequency distribution. In this latter case, where we know that the theoryis exact and hence holds for the whole distribution, the results, althoughas expected not biased, show a very high uncertainty.
Author(s)
Mignola, Giulio Sign in to follow this author
Ugoccioni, Roberto Sign in to follow this author
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