The quantification of operational risk using internal data, relevant external data and expert opinions

Dominik D. Lambrigger, Pavel V. Shevchenko, Mario V. Wüthrich

Research output: Contribution to journalArticlepeer-review

Abstract

To quantify an operational risk capital charge under Basel II, many banks adopt a loss distribution approach. Under this approach, quantification of the frequency and severity distributions of operational risk involves the bank’s internal data, expert opinion and relevant external data. In this paper we suggest a new approach, based on a Bayesian inference method, that allows for a combination of these three sources of information to estimate the parameters of the risk frequency and severity distributions.
Original languageEnglish
Pages (from-to)3-27
Number of pages25
JournalJournal of Operational Risk
Volume2
Issue number3
DOIs
Publication statusPublished - 2007
Externally publishedYes

Keywords

  • operational risk
  • Basel II
  • Loss Distribution Approach
  • Bayesian inference
  • Advanced Measurement Approach
  • Quantitative Risk Management
  • generalized inverse Gaussian distribution

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