Practical methods for measuring and managing operational risk in the financial sector: A clinical study
AbstractThis paper analyzes the implications of the advanced measurement approach (AMA) for the assessment of operational risk. Through a clinical case study on a matrix of two selected business lines and two event types of a large financial institution, we develop a procedure that addresses the major issues faced by banks in the implementation of the AMA. For each cell, we calibrate two truncated distributions functions, one for "normal" losses and the other for the "extreme" losses. In addition, we propose a method to include external data in the framework. We then estimate the impact of operational risk management on bank profitability, through an adapted measure of RAROC. The results suggest that substantial savings can be achieved through active management techniques.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 32 (2008)
Issue (Month): 6 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf
Other versions of this item:
- Georges HÃ¼bner & Jean-Philippe Peters, 2008. "Practical methods for measuring and managing operational risk in the financial sector: a clinical study," ULB Institutional Repository 2013/14158, ULB -- Universite Libre de Bruxelles.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Drees, Holger & Kaufmann, Edgar, 1998. "Selecting the optimal sample fraction in univariate extreme value estimation," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 75(2), pages 149-172, July.
- Chavez-Demoulin, V. & Embrechts, P. & Neslehova, J., 2006. "Quantitative models for operational risk: Extremes, dependence and aggregation," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(10), pages 2635-2658, October.
- FranÃ§ois Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 56(2), pages 649-676, 04.
- Frachot, Antoine & Roncalli, Thierry & Salomon, Eric, 2004. "The Correlation Problem in Operational Risk," MPRA Paper 38052, University Library of Munich, Germany.
- Hurlimann, Werner, 2004. "Fitting bivariate cumulative returns with copulas," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 45(2), pages 355-372, March.
- Marco Moscadelli, 2004. "The modelling of operational risk: experience with the analysis of the data collected by the Basel Committee," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 517, Bank of Italy, Economic Research and International Relations Area.
- Huisman, Ronald, et al, 2001. "Tail-Index Estimates in Small Samples," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 19(2), pages 208-16, April.
- Brechmann, Eike & Czado, Claudia & Paterlini, Sandra, 2014. "Flexible dependence modeling of operational risk losses and its impact on total capital requirements," Journal of Banking & Finance, Elsevier, Elsevier, vol. 40(C), pages 271-285.
- Dahen, Hela & Dionne, Georges, 2010.
"Scaling models for the severity and frequency of external operational loss data,"
Journal of Banking & Finance, Elsevier,
Elsevier, vol. 34(7), pages 1484-1496, July.
- Hela Dahen & Georges Dionne, 2007. "Scaling Models for the Severity and Frequency of External Operational Loss Data," Cahiers de recherche, CIRPEE 0702, CIRPEE.
- Chang, Carolyn W. & Chang, Jack S.K. & Lu, WeLi, 2010. "Pricing catastrophe options with stochastic claim arrival intensity in claim time," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(1), pages 24-32, January.
- Wang, Zongrun & Wang, Wuchao & Chen, Xiaohong & Jin, Yanbo & Zhou, Yanju, 2012. "Using BS-PSD-LDA approach to measure operational risk of Chinese commercial banks," Economic Modelling, Elsevier, vol. 29(6), pages 2095-2103.
- Marco Rocco, 2011. "Extreme value theory for finance: a survey," Questioni di Economia e Finanza (Occasional Papers) 99, Bank of Italy, Economic Research and International Relations Area.
- Stefan Mittnik & Sandra Paterlini & Tina Yener, 2011. "Operationalâ€“risk Dependencies and the Determination of Risk Capital," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 070, University of Modena and Reggio E., Dept. of Economics.
- Elshahat, A. & Parhizgari, Ali & Hong, Liang, 2012. "The information content of the Banking Regulatory Agencies and the Depository Credit Intermediation Institutions," Journal of Economics and Business, Elsevier, Elsevier, vol. 64(1), pages 90-104.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.