Implementing Loss Distribution Approach for Operational Risk
To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved to use the approach in practice. In this paper we review the quantitative methods suggested in literature for implementation of the approach. In particular, the use of the Bayesian inference method that allows to take expert judgement and parameter uncertainty into account, modeling dependence and inclusion of insurance are discussed.
|Date of creation:||Apr 2009|
|Date of revision:||Jul 2009|
|Publication status:||Published in Applied Stochastic Models in Business and Industry (2010), volume 26 issue 3, pages: 277-307|
|Contact details of provider:|| Web page: http://arxiv.org/|
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- Xiaolin Luo & Pavel V. Shevchenko, 2009. "Computing Tails of Compound Distributions Using Direct Numerical Integration," Papers 0904.0830, arXiv.org, revised Feb 2010.
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- repec:trn:utwpde:0503 is not listed on IDEAS
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