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Theoretical Sensitivity Analysis For Quantitative Operational Risk Management

Author

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  • TAKASHI KATO

    (Association of Mathematical Finance Laboratory, 2-10, Kojimachi, Chiyoda, Tokyo 102-0083, Japan)

Abstract

We study the asymptotic behavior of the difference between the values at risk (VaR) VaRα(L) and VaRα(L + S) for heavy-tailed random variables L and S with α ↑ 1 for application in sensitivity analysis of quantitative operational risk management within the framework of the advanced measurement approach of Basel II (and III). Here, L describes the loss amount of the present risk profile and S describes the loss amount caused by an additional loss factor. We obtain different types of results according to the relative magnitudes of the thicknesses of the tails of L and S. In particular, if the tail of S is sufficiently thinner than that of L, then the difference between prior and posterior risk amounts VaRα(L + S) −VaRα(L) is asymptotically equivalent to the expectation (expected loss) of S.

Suggested Citation

  • Takashi Kato, 2017. "Theoretical Sensitivity Analysis For Quantitative Operational Risk Management," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(05), pages 1-23, August.
    • Handle: RePEc:wsi:ijtafx:v:20:y:2017:i:05:n:s0219024917500327
    DOI: 10.1142/S0219024917500327
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    References listed on IDEAS

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    Cited by:

    1. Takashi Kato, 2017. "Asymptotic Analysis for Spectral Risk Measures Parameterized by Confidence Level," Papers 1711.07335, arXiv.org.

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