Multivariate VaRs for operational risk capital computation: a vine structure approach

Dominique Guegan () and Bertrand Hassani ()
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Dominique Guegan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Bertrand Hassani: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: The Basel Advanced Measurement Approach requires financial institutions to compute capital requirements on internal data sets. In this paper we introduce a new methodology permitting capital requirements to be linked with operational risks. The data are arranged in a matrix of 56 cells. Constructing a vine architecture, which is a bivariate decomposition of a n-dimensional structure (n > 2), we present a novel approach to compute multivariate operational risk VaRs. We discuss multivariate results regarding the impact of the dependence structure on the one hand, and of LDF modeling on the other. Our method is simple to carry out, easy to interpret and complies with the new Basel Committee requirements.

Keywords: Operational risks; vine copula; loss distribution function; nested structure; VaR (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (18)

Published in International Journal of Risk Assessment and Management, 2013, 17 (2), pp.148-170. ⟨10.1504/IJRAM.2013.057104⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00645778

DOI: 10.1504/IJRAM.2013.057104

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