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Sensitivity analysis of scenario models for operational risk Advanced Measurement Approach

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  • Chaudhary, Dinesh

Abstract

Scenario Analysis (SA) plays a key role in determination of operational risk capital under Basel II Advanced Measurement Approach. However, operational risk capital based on scenario data may exhibit high sensitivity or wrong-way sensitivity to scenario inputs. In this paper, we first discuss scenario generation using quantile approach and parameter estimation using quantile matching. Then we use single-loss approximation (SLA) to examine sensitivity of scenario based capital to scenario inputs.

Suggested Citation

  • Chaudhary, Dinesh, 2014. "Sensitivity analysis of scenario models for operational risk Advanced Measurement Approach," MPRA Paper 60996, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60996
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    More about this item

    Keywords

    Operational risk; Sensitivity analysis; Scenario analysis; Advanced Measurement Approach;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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