A central limit theorem formulation for empirical bootstrap value-at-risk

Peter Mitic; Nicholas Bloxham

Save this article

Need to know

An alternative to the empirical bootstrap method for estimating minimum operational risk capital is proposed, based on the Central Limit Theorem
The proposed method is calibrated on a set of commonly used fat-tailed distributions, appropriate for operational risk capital calculations
The proposed method is tested against actual loss distributions, and found to be more conservative than using the empirical bootstrap. As such it is a more prudent measure.

Abstract

In this paper, the importance of the empirical bootstrap (EB) in assessing minimal operational risk capital is discussed, and an alternative way of estimating minimal operational risk capital using a central limit theorem (CLT) formulation is presented. The results compare favorably with risk capital obtained by fitting appropriate distributions to the same data. The CLT formulation is significant in validation because it provides an alternative approach to the calculation that is independent of both the empirical severity distribution and any dependent fitted distribution.

As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.

If you would like to purchase additional rights please email info@risk.net

You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.

If you would like to purchase additional rights please email info@risk.net