Modelling Operational Risk using Actuarial Methods
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Within the financial industry Operational Risk is a relatively new concept, but within recent years it has gained more attention due to prior economically devastating events; these are events that cannot be categorized as market- or credit risks. The purpose of this thesis is to study the Loss Distribution Approach(LDA). This is one of the more rigorous models proposed by the Basel Committee on Banking Supervision, in order to calculate the required capital charge that should be set aside to cover future operational loss events within financial institutions. The focus is on the close connec- tion between the LDA and modelling techniques which are used in the field of insurance mathematics. A summary of relevant theoretical results underlying the (aggregate) loss distribution is given, and then detailed ways to model the specific components are pro- vided. More specifically, certain techniques are emphasized, for example: extreme value theory are used to model certain loss severities; and also generalized linear models are used to link event frequency to possible causes, thereby also allow for scenario-based modelling. The models are illustrated in a numerical example where parameter calibra- tion and exploratory techniques are addressed, and several useful tools are identified. Finally capital charges in terms of VaR and CVaR measures are numerically calculated and compared with asymptotic approximations.
Place, publisher, year, edition, pages
2006. , 50 p.
Probability Theory and Statistics
IdentifiersURN: urn:nbn:se:umu:diva-51340OAI: oai:DiVA.org:umu-51340DiVA: diva2:479152
UppsokPhysics, Chemistry, Mathematics