Journal of Operational Risk
ISSN:
1744-6740 (print)
1755-2710 (online)
Editor-in-chief: Marcelo Cruz
A mixing model for operational risk
Jim Gustafsson, Jens Perch Nielsen
Abstract
ABSTRACT
External data can often be useful in improving estimation of operational risk loss distributions. This paper develops a systematic approach that incorporates external information into internal loss distribution modeling. The standard statistical model resembles Bayesian methodology or credibility theory in the sense that prior knowledge (external data) has more weight when internal data is scarce than when internal data is abundant.
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