THEORETICAL SENSITIVITY ANALYSIS FOR QUANTITATIVE OPERATIONAL RISK MANAGEMENT

Takashi Kato ()
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Takashi Kato: Association of Mathematical Finance Laboratory, 2-10, Kojimachi, Chiyoda, Tokyo 102-0083, Japan

International Journal of Theoretical and Applied Finance (IJTAF), 2017, vol. 20, issue 05, 1-23

Abstract: We study the asymptotic behavior of the difference between the values at risk (VaR) VaRα(L) and VaRα(L + S) for heavy-tailed random variables L and S with α ↑ 1 for application in sensitivity analysis of quantitative operational risk management within the framework of the advanced measurement approach of Basel II (and III). Here, L describes the loss amount of the present risk profile and S describes the loss amount caused by an additional loss factor. We obtain different types of results according to the relative magnitudes of the thicknesses of the tails of L and S. In particular, if the tail of S is sufficiently thinner than that of L, then the difference between prior and posterior risk amounts VaRα(L + S) −VaRα(L) is asymptotically equivalent to the expectation (expected loss) of S.

Keywords: Sensitivity analysis; quantitative operational risk management; regular variation; value at risk (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0219024917500327

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