A Mathematical Resurgence of Risk Management: An Extreme Modeling of Expert Opinions

21 Pages Posted: 2 Feb 2015

See all articles by Dominique Guegan

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Bertrand Hassani

Université Paris I Panthéon-Sorbonne

Date Written: April 1, 2014

Abstract

The Operational Risk Advanced Measurement Approach requires financial institutions to use scenarios to model these risks and to evaluate the pertaining capital charges. Considering that a banking group is composed of numerous entities (branches and subsidiaries), and that each one of them is represented by an Operational Risk Manager (ORM), we propose a novel scenario approach based on ORM expertise to collect information and create new data sets focusing on large losses, and the use of the Extreme Value Theory (EVT) to evaluate the corresponding capital allocation. In this paper, we highlight the importance to consider an a priori knowledge of the experts associated to a a posteriori backtesting based on collected incidents.

Keywords: Operational risks, EVT, AMA, Expert, Value-at-Risk, Expected Shortfall

JEL Classification: G02, C01, C06, C08, L08

Suggested Citation

Guegan, Dominique and Hassani, Bertrand, A Mathematical Resurgence of Risk Management: An Extreme Modeling of Expert Opinions (April 1, 2014). Frontiers in Finance and Economics, Vol. 11, No. 1, 25-45, 2014. Available at SSRN: https://ssrn.com/abstract=2558747

Dominique Guegan (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

Bertrand Hassani

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

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