Journal of Operational Risk
ISSN:
1744-6740 (print)
1755-2710 (online)
Editor-in-chief: Marcelo Cruz
The quantification of operational risk using internal data, relevant external data and expert opinion
Dominik D. Lambrigger, Pavel V. Shevchenko and Mario V. Wüthrich
Abstract
ABSTRACT
To quantify an operational risk capital charge under Basel II, many banks adopt a loss distribution approach. Under this approach, quantification of the frequency and severity distributions of operational risk involves the bank’s internal data, expert opinion and relevant external data. In this paper we suggest a new approach, based on a Bayesian inference method, that allows for a combination of these three sources of information to estimate the parameters of the risk frequency and severity distributions.
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