Operational Risk Capital Models
First published:
ISBN: 9781782722014
If you are a Risk.net subscriber you are entitled to 20% off your Risk books purchases. Please email enquiries@riskbooks.com for more information.
As part of your Risk.net subscription you are entitled to 20% off all of your Risk Books purchases. If you would like to place an order please email enquiries@riskbooks.com
Hybrid Model Construction: Integration of ILD, ED and SA
Introduction
Collection of Operational Loss Data: ILD and ED
Scenario Analysis Framework and BEICFs Integration
Loss Data Modelling: ILD and ED
Scenario Analysis Modelling
BEICFs Modelling and Integration into the Capital Model
Hybrid Model Construction: Integration of ILD, ED and SA
Derivation of the Joint Distribution and Capitalisation of Operational Risk
Backtesting, Stress Testing and Sensitivity Analysis
Evolving from a Plain Vanilla to a State-of-the-Art Model
Strategic and Operational Business Planning and Monitoring
Risk–Reward Evaluation of Mitigation and Control Effectiveness
Once the modelling of the four data elements has been performed, as presented in the last three chapters, we now look into the merger of these data elements into a hybrid model. The merger of data elements will result in a single loss severity distribution (or loss frequency distribution, if applied to frequencies) of the operational losses for the ORC incorporating different data elements.
Regarding the merger of different data elements, BCSG-AMA says, “A bank should carefully consider how the data elements are combined and used to ensure that the bank’s operational risk capital charge is commensurate with its level of risk exposure.”
This chapter presents credibility theory and various methods for merging the different data elements into a single loss or frequency distribution hybrid model, organised in the following sections:
- □
“Credibility theory: determining the weights for ILD, ED and SA in the hybrid model”: In this section, we look at the different models for credibility theory that permit us to determine the weight of each data element within the hybrid model methods presented in this chapter.
- □
“The mixture approach”: In this section, we present a
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
