Loss distribution estimation, external data and model averaging

Ethan Cohen-Cole () and Todd Prono ()

No QAU07-8, Supervisory Research and Analysis Working Papers from Federal Reserve Bank of Boston

Abstract: This paper will discuss a proposed method for the estimation of loss distribution using information from a combination of internally derived data and data from external sources. The relevant context for this analysis is the estimation of operational loss distributions used in the calculation of capital adequacy. We present a robust, easy-to-implement approach that draws on Bayesian inferential methods. The principal intuition behind the method is to let the data itself determine how they should be incorporated into the loss distribution. This approach avoids the pitfalls of managerial choice on data weighting and cut-off selection and allows for the estimation of a single loss distribution.

Keywords: Risk (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ecm and nep-rmg
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