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Measuring operational risk in financial institutions
Plunus, Séverine; Hübner, Georges; Peters, Jean-Philippe
2012In Applied Financial Economics, 22 (18), p. 1553-1569
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Keywords :
operational risk; Basel II; CreditRisk+; modelling
Abstract :
[en] The scarcity of internal loss databases tends to hinder the use of the advanced approaches for operational risk measurement (Advanced Measurement Approaches (AMA)) in financial institutions. As there is a greater variety in credit risk modelling, this article explores the applicability of a modified version of CreditRisk+ to operational loss data. Our adapted model, OpRisk+, works out very satisfying Values-at-Risk (VaR) at 95% level as compared with estimates drawn from sophisticated AMA models. OpRisk+ proves to be especially worthy in the case of small samples, where more complex methods cannot be applied. OpRisk+ could therefore be used to fit the body of the distribution of operational losses up to the 95%-percentile, while Extreme Value Theory (EVT), external databases or scenario analysis should be used beyond this quantile.
Disciplines :
Finance
Author, co-author :
Plunus, Séverine ;  Université de Liège - ULiège > HEC-Ecole de gestion > HEC-Ecole de gestion
Hübner, Georges  ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière
Peters, Jean-Philippe ;  Deloitte Luxembourg
Language :
English
Title :
Measuring operational risk in financial institutions
Publication date :
2012
Journal title :
Applied Financial Economics
ISSN :
0960-3107
eISSN :
1466-4305
Publisher :
Routledge
Volume :
22
Issue :
18
Pages :
1553-1569
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBi :
since 02 December 2012

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