Copulae and operational risks
by Dean Fantazzini, Luciana Dalla Valle, Paolo Giudici
International Journal of Risk Assessment and Management (IJRAM), Vol. 9, No. 3, 2008

Abstract: The motivation of this paper is to develop efficient statistical methods aimed at measuring operational risk. A number of recent legislations and market practices are motivating such developments. For instance, 'the New Basel Capital Accord' (Basel II, 2001), published by Basel Committee on Banking supervision, requires financial institutions to measure operational risks, defined as ''the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events''. The main aim of operational risk models is to set aside an amount of capital that can cover unexpected losses. This is typically achieved estimating a loss distribution deriving functions of interest from it (such as the Value at Risk (VaR)). Statistical models for operational risk estimation face the difficulty that there are a large number of loss distributions to be estimated (in the Basel II framework, at least 56). Current approaches treat these distributions as perfectly dependent, thus overestimating VaR. We propose to use copula distributions to model high dimensional operational risks in a more flexible way, that takes (partial) dependence into account.

Online publication date: Tue, 29-Jul-2008

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Risk Assessment and Management (IJRAM):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com