A "toy" model for operational risk quantification using credibility theory

Hans Bühlmann, P.V. Shevchenko, Mario V. Wüthrich

Research output: Contribution to journalArticlepeer-review

Abstract

To meet the Basel II regulatory requirements for the Advanced Measurement Approaches in operational risk, the bank’s internal model should make use of the internal data, relevant external data, scenario analysis, and factors reflecting the business environment and internal control systems. One of the unresolved challenges in operational risk is combining these data sources appropriately. In this paper we focus on quantification of the low-frequency high-impact losses exceeding some high threshold. We suggest a full credibility theory approach to estimate frequency and severity distributions of these losses by taking into account bank internal data, expert opinions and industry data.
Original languageEnglish
Pages (from-to)3-19
Number of pages17
JournalJournal of Operational Risk
Volume2
Issue number1
DOIs
Publication statusPublished - 2007
Externally publishedYes

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