The management of operational risk in the banking industry has undergone significant changes over the last decade due to substantial changes in operational risk environment. Globalization, deregulation, the use of complex financial products and changes in information technology have resulted...

Under the Basel II standards, the Operational Risk (OpRisk) advanced measurement approach is not prescriptive regarding the class of statistical model utilised to undertake capital estimation. It has however become well accepted to utlise a Loss Distributional Approach (LDA) paradigm to model...

Under the Basel II standards, the Operational Risk (OpRisk) advanced measurement approach allows a provision for reduction of capital as a result of insurance mitigation of up to 20%. This paper studies different insurance policies in the context of capital reduction for a range of extreme loss...

Following the Loss Distributional Approach (LDA), this article develops two procedures for simulation of an annual loss distribution for modeling of Operational Risk. First, we provide an overview of the typical compound-process LDA used widely in Operational Risk modeling, before expanding upon...

Recently, Basel Committee for Banking Supervision proposed to replace all approaches, including Advanced Measurement Approach (AMA), for operational risk capital with a simple formula referred to as the Standardised Measurement Approach (SMA). This paper discusses and studies the weaknesses and...

We develop a novel stochastic valuation and premium calculation principle based on probability measure distortions that are induced by quantile processes in continuous time. Necessary and sufficient conditions are derived under which the quantile processes satisfy first– and second– order...