Heavy-tailed distributional model for operational losses

Rosella Giacometti, Svetlozar Rachev, Anna Chernobai, Marida Bertocchi and Giorgio Consigli

Journal of Operational Risk

Abstract: ABSTRACT We examine the statistical properties of operational losses obtained from a large European bank using an actuarial-type framework. The simplistic assumption of a Poisson frequency distribution fails and we show that the frequency process follows closely a non-homogeneous Poisson process with a deterministic intensity of the form of a continuous cdf-like function. Further, operational losses are modeled using a variety of distributions. We address the problems of (1) reporting bias; (2) supplementing internal data with external data; (3) tail estimation; and (4) mixing the distributions of the body and the tail, and propose practical solutions to such problems. Finally, our empirical findings are consistent with other studies reporting very heavy-tailed loss distributions with the tail index below unity.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-operational-risk/2 ... r-operational-losses (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:journ3:2160842

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 ().