Statistical Simulations for Measuring Operational Risks
Statistical Simulations for Measuring Operational Risks

Author(s): Edvard Špaček, Jiří Špaček
Subject(s): Economy, Methodology and research technology, Policy, planning, forecast and speculation, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: Statistical Simulations; Measuring Operational Risks;
Summary/Abstract: Under Basel II methodology there are distinguished three main risks - market, credit and operational risk. In all cases, it is possible to determine the capital requirement using the basic method, which consists of multiplying the size of the exposure by a predefined coefficient. At the same time, a more advanced approach is allowed for all categories, subject to regulatory approval. The capital requirement may be calculated on the basis of the VaR (ValueAtRisk) risk acquiring method. In the case of the advanced approach for operational risk (the aim of this study), only basic qualitative and quantitative requirements are defined and it is the bank’s responsibility to use appropriate methods to estimate the required amount of risk capital. Keywords – Operational risk, loss distribution, loss frequency, loss severity, composite distribution, AMA methods, LDA approaches, IMA methods, Monte Carlo methods, MILDA_E oprisk calculator, Excel simulation add-ins.

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