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Adequate Capital and Stress Testing for Operational Risks
Year Of Publication: 2004
Month Of Publication: June
Pages: 273-290
Download Count: 975
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Comment Num: 0
Language: EN
Who Can Read: Free
Date: 10-3-2005
Publisher: Administrator
Summary
Models which account for sequential and equal-time correlationsin operational risk events were first proposed by Kühn and Neu(2003) and, later on, by Leippold and Vanini (2003). Similarapproaches have also been applied to credit risk modelling (Egloff,Leippold and Vanini, 2003; Neu and Kühn, 2004). Our model is basedon analogies to models of interacting many particle systems in statisticalphysics, in which phase transitions triggered by interactions canoccur and drastically change the overall behaviour of a system.Specifically, our model resembles a lattice gas with heterogeneous,functionally defined couplings – combined with an element ofannealed disorder concerning the role of loss-distributions. In such adescription, bursts and avalanches of process failures correspond todroplet formation associated with a first-order phase transition.In the following we summarise our main ideas (2003) and presentnew simulations with particular focus on capital adequacyand stress testing for operational risk. For further details andanalytic descriptions of our model we refer to Kühn and Neu(20
Author(s)
Kuhn, Reimer Sign in to follow this author
Neu, Peter Sign in to follow this author
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