Measuring risk with ordinal variables

Silvia Figini and Paolo Giudici
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Silvia Figini: Department of Economics and Management, University of Pavia

No 32, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: In this paper we propose a novel approach to measure risks, when the data available are expressed in an ordinal scale. As a result we obtain a new index of risk bounded between 0 and 1, that leads to a risk ordering that is consistent with a stochastic dominance approach. The proposed measure, being non parametric, can be applied to a wide range of problems, where data are ordinal and where a point estimate of risk is needed. We also provide a method to calculate confidence intervals for the proposed risk measure, in a Bayesian non parametric framework. In order to evaluate the actual performance of what we propose, we analyse a database provided by a telecommunication company, with the final aim of measuring operational risks, starting from a self-assessment questionnaire.

Keywords: Risk measurement; Ordinal variables; Operational risk (search for similar items in EconPapers)
Pages: 19 pages
Date: 2013-02
New Economics Papers: this item is included in nep-ecm and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:032

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