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A new algorithm for the loss distribution function with applications to Operational Risk Management

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Author Info
Dominique Guegan () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
Bertrand Hassani () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)

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Abstract

Operational 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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00384398_v1.

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Date of creation: Apr 2009
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Handle: RePEc:hal:cesptp:halshs-00384398_v1

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Related research
Keywords: Operational risk; Panjer algorithm; Kernel; numerical integration; convolution.;

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This page was last updated on 2009-12-1.

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