Scenario Analysis in the Measurement of Operational Risk Capital : A Change of Measure Approach

@inproceedings{Dutta2010ScenarioAI,
  title={Scenario Analysis in the Measurement of Operational Risk Capital : A Change of Measure Approach},
  author={K. Dutta and David F. Babbel},
  year={2010}
}
At large financial institutions, operational risk is gaining the same importance as market and credit risk in the capital calculation. Although scenario analysis is an important tool for financial risk measurement, its use in the measurement of operational risk capital has been arbitrary and often inaccurate. We propose a method that combines scenario analysis with historical loss data. Using the Change of Measure approach, we evaluate the impact of each scenario on the total estimate of… CONTINUE READING

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