An econometric model to scale operational losses

Heru Sataputera Na, Jan van den Berg, Lourenco Couto Miranda and Marc Leipoldt

Journal of Operational Risk

Abstract: ABSTRACT One of the major topics related to the modeling of operational risk is the nonavailability of a sufficient amount of data within financial institutions. This paper describes a way to circumvent this problem by presenting a scaling mechanism that enables us to put data originating from several sources together in one modeling framework. Using both internal data from different business units and publicly available data from other institutions, we show that a power law relationship exists between losses incurred in business units and their gross revenue. We also show how the resulting aggregated data set can be used to calculate operational value-at-risk.

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Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ3:2160838

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