Multivariate Models for Operational Risk
Author | : Omar Rachedi |
Publisher | : |
Total Pages | : |
Release | : 2011 |
ISBN-10 | : OCLC:1290779000 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Multivariate Models for Operational Risk written by Omar Rachedi and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The aggregation of event types (ETs) is a crucial step for operational risk management techniques. Basel II requires the computation of a 99.9% VaR for each ET, and their aggregation via a simple sum if the dependence among ETs is not specified. Such a procedure assumes perfect positive dependence and therefore involves the implementation of the most conservative aggregation model. We propose a methodology that uses extreme-value theory to model the loss severities, copulas to model their dependence and a general Poisson shock model to capture the dependencies among ETs. We show that this approach allows the allocation of capital and hedge operational risk in a more efficient way than the standard approach.