A tale of tails: an empirical analysis of loss distribution models for estimating operational risk capital
AbstractOperational risk is being considered as an important risk component for financial institutions as evinced by the large sums of capital that are allocated to mitigate this risk. Therefore, risk measurement is of paramount concern for the purposes of capital allocation, hedging, and new product development for risk mitigation. We perform a comprehensive evaluation of commonly used methods and introduce new techniques to measure this risk with respect to various criteria. We find that our newly introduced techniques perform consistently better than the other models we tested.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Boston in its series Working Papers with number 06-13.
Date of creation: 2006
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-16 (All new papers)
- NEP-FMK-2006-09-16 (Financial Markets)
- NEP-RMG-2006-09-16 (Risk Management)
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