Extremal Events in a Bank Operational Losses
Operational losses are true dangers for banks since their maximal values to signal default are difficult to predict. This risky situation is unlike default risk whose maximum values are limited by the amount of credit granted. For example, our data from a very large US bank show that this bank could suffer, on average, more than four major losses a year. This bank had seven losses exceeding hundreds of millions of dollars over its 52 documented losses of more than $1 million during the 1994-2004 period. The tail of the loss distribution (a Pareto distribution without expectation whose characteristic exponent is 0.95 ? ? ? 1) shows that this bank can fear extreme operational losses ranging from $1 billion to $11 billion, at probabilities situated respectively between 1% and 0.1%. The corresponding annual insurance premiums are evaluated to range between $350 M and close to $1 billion.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: CP 8888, succursale Centre-Ville, Montréal, QC H3C 3P8|
Phone: (514) 987-8161
Web page: http://www.cirpee.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:lvl:lacicr:1014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Manuel Paradis)
If references are entirely missing, you can add them using this form.