The specification of dependence structures and the assessment of their effects on the total risk--capital are still open issues in modeling operational risk. In this paper, we investigate the potential consequences of adopting the restrictive standard Basel's Loss Distribution Approach (LDA), as compared to strategies that take dependencies explicitly into account. Drawing on a real--world database, we fit alternative dependence structures, using parametric copulas and nonparametric tail--depen\-dence coefficients, and discuss the implications on the estimation of the total risk capital. We find that risk--capital estimates may increase relative to those derived for the standard LDA when explicitly accounting for the presence of dependencies. The difference in the risk--capital estimates can be explained by the (fitted) characteristics of the data and the specific Monte Carlo setup in simulation--based risk--capital analysis.

Operational-Risk Dependencies and the Determination of Risk Capital / S., Mittnik; Paterlini, Sandra; T., Yener. - In: THE JOURNAL OF OPERATIONAL RISK. - ISSN 1755-2710. - ELETTRONICO. - 8:4(2013), pp. 83-104. [10.21314/JOP.2013.133]

Operational-Risk Dependencies and the Determination of Risk Capital

PATERLINI, Sandra;
2013

Abstract

The specification of dependence structures and the assessment of their effects on the total risk--capital are still open issues in modeling operational risk. In this paper, we investigate the potential consequences of adopting the restrictive standard Basel's Loss Distribution Approach (LDA), as compared to strategies that take dependencies explicitly into account. Drawing on a real--world database, we fit alternative dependence structures, using parametric copulas and nonparametric tail--depen\-dence coefficients, and discuss the implications on the estimation of the total risk capital. We find that risk--capital estimates may increase relative to those derived for the standard LDA when explicitly accounting for the presence of dependencies. The difference in the risk--capital estimates can be explained by the (fitted) characteristics of the data and the specific Monte Carlo setup in simulation--based risk--capital analysis.
2013
8
4
83
104
Operational-Risk Dependencies and the Determination of Risk Capital / S., Mittnik; Paterlini, Sandra; T., Yener. - In: THE JOURNAL OF OPERATIONAL RISK. - ISSN 1755-2710. - ELETTRONICO. - 8:4(2013), pp. 83-104. [10.21314/JOP.2013.133]
S., Mittnik; Paterlini, Sandra; T., Yener
File in questo prodotto:
File Dimensione Formato  
2013_mittnik_paterlini_yener_acceptedJOP.pdf

Accesso riservato

Tipologia: Versione originale dell'autore proposta per la pubblicazione
Dimensione 1.19 MB
Formato Adobe PDF
1.19 MB Adobe PDF   Visualizza/Apri   Richiedi una copia
Pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/835090
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 14
  • ???jsp.display-item.citation.isi??? 12
social impact