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A mathematical resurgence of risk management: an extreme modeling of expert opinions

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Author Info

  • Dominique Guegan

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne)

  • Bertrand Hassani

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, BPCE - BPCE)

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    Abstract

    The Operational Risk Advanced Measurement Approach requires financial institutions to use scenarios to model these risks and to evaluate the pertaining capital charges. Considering that a banking group is composed of numerous entities (branches and subsidiaries), and that each one of them is represented by an Operational Risk Manager (ORM), we propose a novel scenario approach based on ORM expertise to collect information and create new data sets focusing on large losses, and the use of the Extreme Value Theory (EVT) to evaluate the corresponding capital allocation. In this paper, we highlight the importance to consider an a priori knowledge of the experts associated to a a posteriori backtesting based on collected incidents.

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    Bibliographic Info

    Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00639666.

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    Date of creation: Sep 2011
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    Handle: RePEc:hal:cesptp:halshs-00639666

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    Related research

    Keywords: Basel II; operational risks; EVT; AMA; expert; Value-at-Risk; expected shortfall;

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    References

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    1. Dominique Guegan & Bertrand Hassani, 2011. "Operational risk: A Basel II++ step before Basel III," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00639484, HAL.
    2. Dominique Guegan & Bertrand K. Hassani, 2011. "Operational risk: a Basel II++ step before Basel III," Documents de travail du Centre d'Economie de la Sorbonne 11053, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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    Cited by:
    1. Dominique Guegan & Bertrand Hassani & Cédric Naud, 2011. "An efficient threshold choice for operational risk capital computation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00790217, HAL.

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