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Estimating Operational Risk Capital for Correlated, Rare Events
Company: University of Munich
Company Url: Click here to open
Year Of Publication: 2009
Month Of Publication: October
Pages: 29
Download Count: 16
View Count: 1837
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 7-17-2010
Publisher: Administrator
Summary
We show that the use of conventional correlations for modeling dependencies may
lead to a counterintuitive behavior of risk measures, such as Value–at–Risk and
Expected Shortfall, in simulation–based assessments of the risk of very rare events.
The effect can be avoided in the case of Expected Shortfall by an appropriate design
of the simulation setup. This does not hold, however, for the widely used Value–at-
Risk measure. Consequently, the goal of decreasing minimum capital requirements by specifying
less–than–perfect correlations, as suggested by the New Basel Capital Accord (Basel
II ), may not be ach
Author(s)
Yener, Tina Sign in to follow this author
Mittnik, Stefan Sign in to follow this author
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