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A Study on VaR Stability for Operational Risk Management
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 Title & Authors
A Study on VaR Stability for Operational Risk Management
Kim, Hyun-Joong; Kim, Woo-Hwan; Lee, Sang-Cheol; Im, Jong-Ho; Cho, Sang-Hee; Kim, Ah-Hyoun;
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Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or external events. The advanced measurement approach proposed by Basel committee uses loss distribution approach(LDA) which quantifies operational loss based on bank's own historical data and measurement system. LDA involves two distribution fittings(frequency and severity) and then generates aggregate loss distribution by employing mathematical convolution. An objective validation for the operational risk measurement is essential because the operational risk measurement allows flexibility and subjective judgement to calculate regulatory capital. However, the methodology to verify the soundness of the operational risk measurement was not fully developed because the internal operational loss data had been extremely sparse and the modeling of extreme tail was very difficult. In this paper, we propose a methodology for the validation of operational risk measurement based on bootstrap confidence intervals of operational VaR(value at risk). We derived two methods to generate confidence intervals of operational VaR.
Loss distribution approach;validation;operational VaR;bootstrap;stability;
 Cited by
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