The Calculation of Minimum Regulatory Capital using Single-Loss Approximations

Matthias Degen

Journal of Operational Risk

Abstract: ABSTRACT The calculation of the minimum regulatory capital that a financial institution needs to hold as a buffer to safeguard against adverse business outcomes is a delicate statistical issue. In this paper we highlight problems that may arise and voice a warning against a naive use of mathematical tools. Our focus is on the so-called single-loss approximation used in the operational risk industry for the calculation of minimum regulatory capital. We provide an analytical framework to study the accuracy of this approximation and, as a result, derive an improved method for the calculation of minimum regulatory capital charges. It is not the aim of our paper to advocate the use of such single-loss approximations. Rather, our contribution should be seen as an analytical justification of the essentially empirical findings of a 2006 paper by Böcker and Sprittulla.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-operational-risk/2 ... -loss-approximations (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ3:2160831

Access Statistics for this article

More articles in Journal of Operational Risk from Journal of Operational Risk
Bibliographic data for series maintained by Thomas Paine ().