OPERATIONAL RISK ESTIMATION UNCERTAINTY ON ENVIRONMENT: A CASE STUDY, ESTIMACION DEL RIESGO OPERATIVO BAJO AMBIENTE DE INCERTIDUMBRE: ESTUDIO DE CASO

Jorge A. Restrepo M and Santiago Medina H

Revista Internacional Administracion & Finanzas, 2014, vol. 7, issue 7, 39-54

Abstract: This paper presents a methodological approach to economic loss quantification in the textile-clothing industry caused by volatility of the following macroeconomic variables: Representative Market Rate (TRM), Consumer Price Index (CPI) and Producer Price Index (PPI). Probability distributions and stochastic processes identified for TRM, CPI and PPI risk factors are included in foreign and local sales revenue, foreign and domestic purchases of raw materials, and fixed and variable production costs. These items determine the OR and are affected directly by macroeconomic factors. Then, using Monte Carlo simulation, we quantify the effects of volatility of each factor on the OR to gather useful information for risk mitigation. The methodology is based on companies in the textile and clothing industry, grouped under Colombia ISIC 181 code. The methodology is carried out through a VaR-type indicator by projecting the OR index for the periods 2011 and 2012. In preparing the forecast, we used information available in the Annual Manufacturing Survey (AMS) for the period 2000 to 2010, and later build an industry financial model for 2011 and 2012. We point out the AMS has a two-year publication lag, and to date, we have partial information from 2011, which is not sufficient for the modeling of such period.

Keywords: Earnings at Risk –EaR-; Value at Risk –VaR-; Volatility; SMEs; Operative Risk (search for similar items in EconPapers)
JEL-codes: E47 G17 G32 (search for similar items in EconPapers)
Date: 2014
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