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See detailMeasuring operational risk in financial institutions
Plunus, Séverine ULg; Hübner, Georges ULg; Peters, Jean-Philippe ULg

in Applied Financial Economics (2012), 22(18), 1553-1569

The scarcity of internal loss databases tends to hinder the use of the advanced approaches for operational risk measurement (Advanced Measurement Approaches (AMA)) in financial institutions. As there is a ... [more ▼]

The scarcity of internal loss databases tends to hinder the use of the advanced approaches for operational risk measurement (Advanced Measurement Approaches (AMA)) in financial institutions. As there is a greater variety in credit risk modelling, this article explores the applicability of a modified version of CreditRisk+ to operational loss data. Our adapted model, OpRisk+, works out very satisfying Values-at-Risk (VaR) at 95% level as compared with estimates drawn from sophisticated AMA models. OpRisk+ proves to be especially worthy in the case of small samples, where more complex methods cannot be applied. OpRisk+ could therefore be used to fit the body of the distribution of operational losses up to the 95%-percentile, while Extreme Value Theory (EVT), external databases or scenario analysis should be used beyond this quantile. [less ▲]

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