Evaluating operational risk by an inhomogeneous counting process based on Panjer recursion

José Alfredo Jiménez and Viswanathan Arunachalam

Journal of Operational Risk

Abstract: ABSTRACTOperational risk (OpRisk) is increasingly being considered an important financial risk. In recent years, it has been given more consideration due to economically disturbing events. The loss distribution approach (LDA) is one of the demanding models suggested by the Basel Committee on Banking Supervision (BCBS). The purpose of this paper is to propose a new approach for determining operational value-at-risk (OpVaR) using an inhomogeneous counting process based on Panjer recursion as the frequency distribution, and generalized Pareto distributions and generalized extreme value distributions are used to model the severities. We focus on the inhomogeneous Panjer process (IPP) and investigate its properties. In this paper, we present the LDA for computing OpRisk using IPP. The closed-form expression for the moment generating function for determining the aggregate loss distribution is derived. We generalize;well-known classical models and derive the statistical characteristics for modeling loss distribution. An illustration is presented to demonstrate the applicability of the proposed model in OpRisk and also discuss various special cases of the model.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-operational-risk/2 ... -on-panjer-recursion (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:journ3:2450272

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 ().