Publication detail

Operational Risk - Scenario Analysis

Author(s): prof. PhDr. Petr Teplý Ph.D.,
Type: Articles in journals with impact factor
Year: 2011
Number: 1
ISSN / ISBN: 1210-0455
Published in: Prague Economic Papers, Czech Republic
Publishing place: Prague, Czech Republic
Keywords: operational risk, scenario analysis, economic capital, loss distribution approach, extreme value theory, stress testing
JEL codes: G21, G32, C15
Suggested Citation: pp. 23-39
Grants: GACR 403/10/1235 (2010-2014) Institutional Responses to Financial Market Failures GACR 403/10/P278 (2010-2012) The Implications of The Global Crisis on Economic Capital Management of Financial Institutions GAUK - 31610 Alternative methods of stress testings for operational risk management IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: This paper focuses on operational risk measurement techniques and on economic capital estimation methods. A data sample of operational losses provided by an anonymous Central European bank is analyzed using several approaches. Multiple statistical concepts such as the Loss Distribution Approach and the Extreme Value Theory, including scenario analysis method, are considered. Custom plausible loss events defined in a particular scenario are merged with the original data sample and their impact on capital estimates and on the financial institution as a whole is evaluated. Two main questions are assessed – what is the most appropriate statistical method to measure and model operational loss data distribution and what is the impact of hypothetical plausible events on the financial institution. The g&h distribution was evaluated to be the most suitable one for operational risk modeling. The method based on the combination of historical loss events modeling and scenario analysis provides reasonable capital estimates and allows for the measurement of the impact of very extreme events on banking operations.
Downloadable: PEP 1-2011 Operational Risk - Scenario Analysis MR+PT
June 2023


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