Theoretical Sensitivity Analysis for Quantitative Operational Risk Management

Takashi Kato

Papers from arXiv.org

Abstract: We study the asymptotic behavior of the difference between the values at risk VaR(L) and VaR(L+S) for heavy tailed random variables L and S for application in sensitivity analysis of quantitative operational risk management within the framework of the advanced measurement approach of Basel II (and III). Here L describes the loss amount of the present risk profile and S describes the loss amount caused by an additional loss factor. We obtain different types of results according to the relative magnitudes of the thicknesses of the tails of L and S. In particular, if the tail of S is sufficiently thinner than the tail of L, then the difference between prior and posterior risk amounts VaR(L+S) - VaR(L) is asymptotically equivalent to the expectation (expected loss) of S.

Date: 2011-04, Revised 2017-05
New Economics Papers: this item is included in nep-ban and nep-rmg
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Published in International Journal of Theoretical and Applied Finance, Vol.20, No.5 (2017), 23 pages

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1104.0359

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