Operational Risk Aggregation across Business Lines Based on Frequency Dependence and Loss Dependence
Joint Authors
Sun, Xiaolei
Zhu, Xiaoqian
Li, Jianping
Wu, Dengsheng
Gao, Lijun
Feng, Jichuang
Chen, Jianming
Source
Mathematical Problems in Engineering
Issue
Vol. 2014, Issue 2014 (31 Dec. 2014), pp.1-8, 8 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2014-02-25
Country of Publication
Egypt
No. of Pages
8
Main Subjects
Abstract EN
In loss distribution approach (LDA), the most popular approach in operational risk modeling, frequency dependence and loss distribution dependence across business lines are two dependences which banks should consider.
In practice, mainly for simplicity, many banks only model frequency dependence although they think that the impact of frequency dependence is insignificant.
In this study, two approaches, respectively, models frequency dependence and loss distribution dependence, are introduced.
Both approaches are modeled by copula function, which is capable of capturing nonlinear correlation.
Based on the most comprehensive operational risk dataset of Chinese banking as far as we know, the operational risk capital charge of the overall Chinese banking is calculated by the two approaches.
The results show that there is an obvious distinction between the capital calculated by modeling frequency dependence and the capital calculated by modeling loss dependence.
The approach with very limited attention exactly yields a much larger capital result.
So it is advised in this paper that banks should not just rely on the approach to modeling frequency dependence for it is natural and easy to deal with.
A safer and more effective way for banks is to comprehensively take the results of the two kinds of approach into consideration.
American Psychological Association (APA)
Li, Jianping& Zhu, Xiaoqian& Chen, Jianming& Gao, Lijun& Feng, Jichuang& Wu, Dengsheng…[et al.]. 2014. Operational Risk Aggregation across Business Lines Based on Frequency Dependence and Loss Dependence. Mathematical Problems in Engineering،Vol. 2014, no. 2014, pp.1-8.
https://search.emarefa.net/detail/BIM-469365
Modern Language Association (MLA)
Li, Jianping…[et al.]. Operational Risk Aggregation across Business Lines Based on Frequency Dependence and Loss Dependence. Mathematical Problems in Engineering No. 2014 (2014), pp.1-8.
https://search.emarefa.net/detail/BIM-469365
American Medical Association (AMA)
Li, Jianping& Zhu, Xiaoqian& Chen, Jianming& Gao, Lijun& Feng, Jichuang& Wu, Dengsheng…[et al.]. Operational Risk Aggregation across Business Lines Based on Frequency Dependence and Loss Dependence. Mathematical Problems in Engineering. 2014. Vol. 2014, no. 2014, pp.1-8.
https://search.emarefa.net/detail/BIM-469365
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-469365