A new algorithm for the loss distribution function with applications to Operational Risk Management
AbstractOperational risks inside banks and insurance companies is currently an important task. The computation of a risk measure associated to these risks lies on the knowledge of the so-called Loss Distribution Function. Traditionally this distribution function is computed via the Panjer algorithm which is an iterative algorithm. In this paper, we propose an adaptation of this last algorithm in order to improve the computation of convolutions between Panjer class distributions and continuous distributions. This new approach permits to reduce drastically the variance of the estimated VAR associated to the operational risks.
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Date of creation: Nov 2009
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Operational risk; Panjer algorithm; Kernel; numerical integration; convolution.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-23 (All new papers)
- NEP-ALL-2009-12-11 (All new papers)
- NEP-BAN-2009-12-11 (Banking)
- NEP-CMP-2009-05-23 (Computational Economics)
- NEP-RMG-2009-05-23 (Risk Management)
- NEP-RMG-2009-12-11 (Risk Management)
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