In this paper, I introduce a theoretically justified framework that incorporates scenario analysis into operational risk modeling. The basis for the framework is the idea that only worst-case scenarios contain valuable information about the tail behavior of operational losses. In addition,...

This paper proposes an alternative framework to set banks’ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism. This approach would improve upon the vulnerability to gaming of the AMA and...

This paper proposes an alternative framework to set banks' operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism. This approach would improve upon the vulnerability to gaming of the AMA and the lack...