Multivariate Models for Operational Risk: A Copula Approach Using Extreme Value Theory and Poisson Shock Models

Omar Rachedi, Dean Fantazzini

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4 Cites (Scopus)

Resum

The aggregation of event types (ETs) is a crucial step for operational risk management techniques. Basel II requires the computation of a 99.9% VaR for each ET, and their aggregation via a simple sum if the dependence among ETs is not specified. Such a procedure assumes perfect positive dependence and therefore involves the implementation of the most conservative aggregation model. We propose a methodology that uses extreme-value theory to model the loss severities, copulas to model their dependence, and a general Poisson shock model to capture the dependencies among ETs. We show that this approach allows the allocation of capital and hedge operational risk in a more efficient way than the standard approach.

Idioma originalAnglès
Títol de la publicacióOperational Risk toward Basel III
Subtítol de la publicacióBest Practices and Issues in Modeling, Management, and Regulation
EditorJohn Wiley and Sons
Pàgines197-218
Nombre de pàgines22
ISBN (imprès)9780470390146
DOIs
Estat de la publicacióPublicada - 29 de nov. 2011
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