Implications of Alternative Operational Risk Modeling Techniques
AbstractQuantification of operational risk has received increased attention with the inclusion of an explicit capital charge for operational risk under the new Basle proposal. The proposal provides significant flexibility for banks to use internal models to estimate their operational risk, and the associated capital needed for unexpected losses. Most banks have used variants of value at risk models that estimate frequency, severity, and loss distributions. This paper examines the empirical regularities in operational loss data. Using loss data from six large internationally active banking institutions, we find that loss data by event types are quite similar across institutions. Furthermore, our results are consistent with economic capital numbers disclosed by some large banks, and also with the results of studies modeling losses using publicly available "external" loss data.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11103.
Date of creation: Feb 2005
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Publication status: published as Carey, Mark and Rene M. Stulz (eds.) The Risks of Financial Institutions A National Bureau of Economic Research Conference Report. Chicago and London: University of Chicago Press, 2006.
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Other versions of this item:
- Patrick de Fontnouvelle & Eric Rosengren & John Jordan, 2007. "Implications of Alternative Operational Risk Modeling Techniques," NBER Chapters, in: The Risks of Financial Institutions, pages 475-512 National Bureau of Economic Research, Inc.
- Patrick de Fontnouvelle & Eric Rosengren & John Jordan, 2004. "Implications of alternative operational risk modeling techniques," Working Papers 04-9, Federal Reserve Bank of Boston.
- G2 - Financial Economics - - Financial Institutions and Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-FIN-2005-02-13 (Finance)
- NEP-RMG-2005-02-13 (Risk Management)
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