Economy – Quantitative Finance – Risk Management
Scientific paper
2009-04-11
Applied Stochastic Models in Business and Industry (2010), volume 26 issue 3, pages: 277-307
Economy
Quantitative Finance
Risk Management
Scientific paper
10.1002/asmb.812
To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved to use the approach in practice. In this paper we review the quantitative methods suggested in literature for implementation of the approach. In particular, the use of the Bayesian inference method that allows to take expert judgement and parameter uncertainty into account, modeling dependence and inclusion of insurance are discussed.
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