Implementing loss distribution approach for operational risk

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22 Citations (Scopus)

Abstract

In order 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 this approach in practice. In this paper we review the quantitative methods suggested in the literature for the implementation of the approach. In particular, the use of Bayesian inference that allows one to take expert judgement and parameter uncertainty into account, modeling dependence, and inclusion of insurance are discussed.

Original languageEnglish
Pages (from-to)277-307
Number of pages31
JournalApplied Stochastic Models in Business and Industry
Volume26
Issue number3
DOIs
Publication statusPublished - May 2010
Externally publishedYes

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