Using External Data in Operational Risk

Montserrat Guillen, Jim Gustafsson (), Jens Perch Nielsen () and Paul Pritchard ()
Additional contact information
Jim Gustafsson: Codan Insurance, Copenhagen, Denmark.
Jens Perch Nielsen: University of Copenhagen & Festina Lente, Copenhagen, Denmark.
Paul Pritchard: Royal&SunAlliance, London, U.K.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2007, vol. 32, issue 2, 178-189

Abstract: We present a method to combine expert opinion on the likelihood of under-reporting with an operational risk data set. Under-reporting means that not all losses are identified and therefore an incorrect distributional assumption may be made, and ultimately an incorrect assessment made of capital required. Our approach can be applied to help insurers and other financial services companies make better assessments of capital requirements for operational risk using either external or internal sources. We conclude that operational risk capital evaluation can be significantly biased if under-reporting is ignored. The Geneva Papers (2007) 32, 178–189. doi:10.1057/palgrave.gpp.2510129

Date: 2007
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