The Application of Extreme Value Theory in Operational Risk Management

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11230%2F12%3A10124265" target="_blank" >RIV/00216208:11230/12:10124265 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Result language
angličtina
Original language name
The Application of Extreme Value Theory in Operational Risk Management
Original language description
This paper focuses on modeling the real operational data of an anonymous Central European bank. We have applied the Extreme Value Theory, in which we have used two estimation methods - the standard maximum likelihood estimation method and the probabilityweighted moments (PWM). Our results proved a heavy-tailed pattern of operational risk data as documented by many researchers. Additionally, we showed that the PWM is quite consistent when the data is limited as it was able to provide reasonable and consistent capital estimates. Our findings show that when using the Advanced Measurement Approach rather than the Basic Indicator Approach used in Basel II, the researched bank might save approx. 6-8% of its capital requirement on operational risk.
Czech name
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Czech description
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Type
J<sub>x</sub> - Unclassified - Peer-reviewed scientific article (Jimp, Jsc and Jost)
CEP classification
AH - Economics
OECD FORD branch
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Project
<a href="/en/project/GPP403%2F10%2FP278" target="_blank" >GPP403/10/P278: The Implications of The Global Crisis on Economic Capital Management of Financial Institutions</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2012
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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