Modeling macroeconomic effects and expert judgments in operational risk: a Bayesian approach

Holger Capa Santos, Marie Kratz and Franklin Mosquera Muñoz

Abstract

ABSTRACT

In this paper we discuss operational risk modeling and consider a general Bayesian context incorporating information on market risk profile, expert opinion and operational losses, taking into account the general macroeconomic environment as well. This modeling aims at estimating a characteristic parameter of the operational risk severity distribution function, using those sources of information. It generalizes under more realistic conditions a study realized by Lambrigger, Shevchenko and Wüthrich, and analyses the influence of macroeconomic effects on operational risk. Our theoretical model suggests that severities of operational losses are more related to the macroeconomic environment than usually assumed.