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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 () (Centre d'Economie de la Sorbonne - Paris School of Economics)
Bertrand Hassani () (CNCE et Centre d'Economie de la Sorbonne)

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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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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2009/09023.pdf
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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 09023.

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Length: 19 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:mse:cesdoc:09023

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Web page: http://ces.univ-paris1.fr/
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Related research
Keywords: Operational risk; Panjer algorithm; Kernel; numerical integration; convolution.;

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Find related papers by JEL classification:
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming

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This page was last updated on 2009-11-9.

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