ESTIMATING OPERATIONAL RISK CAPITAL CHARGE IN BANKING INDUSTRY USING LOSS DISTRIBUTION APPROACH

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NOSRATI HASHEM; PAKIZEH KAMRAN

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Journal: FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT) Year:2014 | Volume:5 | Issue:20 Page(s): 1-26

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Information Journal Paper

Title

ESTIMATING OPERATIONAL RISK CAPITAL CHARGE IN BANKING INDUSTRY USING LOSS DISTRIBUTION APPROACH

Author(s)

NOSRATI HASHEM | PAKIZEH KAMRAN | Issue Writer Certificate

Keywords

OPERATIONAL RISKQ1

BASEL COMMITTEE ON BANKING SUPERVISIONQ2

CAPITAL CHARGEQ2

ADVANCED MEASUREMENT APPROACHQ2

LOSS DISTRIBUTION APPROACHQ2

α-STABLE DISTRIBUTIONQ2

VALUE AT RISKQ1

CONDITIONAL VALUE AT RISKQ1

Abstract

The basic goal of this paper is to develop a model for calculating of CAPITAL CHARGE in case study of one Iranian bank. The model follows LOSS DISTRIBUTION APPROACH (LDA). We demonstrate how a bank can use the actuarial model in developing of OPERATIONAL RISK system. Our work focuses on the main quantitative components, i.e. use of loss data in database, frequency and severity modeling, using a kind of fat tail distributions, a-stable, in severity modeling, aggregate frequency and severity distributions to build aggregate distributions, dependency concepts and CAPITAL CHARGE calculation using VALUE AT RISK (VaR) and Conditional VALUE AT RISK (CVaR). We conclude with a section on the analysis and validation on LDA models. We show that the a-stable model can be good choice for severity modeling and negative binomial is appropriate for frequency modeling in retail banking.

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APA: Copy

NOSRATI, HASHEM, & PAKIZEH, KAMRAN. (2014). ESTIMATING OPERATIONAL RISK CAPITAL CHARGE IN BANKING INDUSTRY USING LOSS DISTRIBUTION APPROACH. FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT), 5(20), 1-26. SID. https://sid.ir/paper/197744/en

Vancouver: Copy

NOSRATI HASHEM, PAKIZEH KAMRAN. ESTIMATING OPERATIONAL RISK CAPITAL CHARGE IN BANKING INDUSTRY USING LOSS DISTRIBUTION APPROACH. FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT)[Internet]. 2014;5(20):1-26. Available from: https://sid.ir/paper/197744/en

IEEE: Copy

HASHEM NOSRATI, and KAMRAN PAKIZEH, “ESTIMATING OPERATIONAL RISK CAPITAL CHARGE IN BANKING INDUSTRY USING LOSS DISTRIBUTION APPROACH,” FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT), vol. 5, no. 20, pp. 1–26, 2014, [Online]. Available: https://sid.ir/paper/197744/en

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