We propose a dynamical model for the estimation of Operational Risk in banking institutions. Operational Risk is the risk that a financial loss occurs as the result of failed processes. Examples of operational losses are the ones generated by internal frauds, human errors or failed transactions....

Data insufficiency and reporting threshold are two main issues in operational risk modelling. When these conditions are present, maximum likelihood estimation (MLE) may produce very poor parameter estimates. In this study, we first investigate four methods to estimate the parameters of truncated...