An application of capital allocation principles to operational risk

Jilber Urbina and Montserrat Guillén

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: The cost of operational risk refers to the capital needed to a fford the loss generated by ordinary activities of a firm. In this work we demonstrate how allocation principles can be used to the subdivision of the aggregate capital so that the firm can distribute this cost across its various constituents that generate operational risk. Several capital allocation principles are revised. Proportional allocation allows to calculate a relative risk premium to be charged to each unit. An example of fraud risk in the banking sector is presented and some correlation scenarios between business lines are compared. Keywords: solvency, quantile, value at risk, copulas

Keywords: Gestió del risc; 65 - Gestió i organització. Administració i direcció d'empreses. Publicitat. Relacions públiques. Mitjans de comunicació de masses (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (4)

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Working Paper: An application of capital allocation principles to operational risk (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:urv:wpaper:2072/222201

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