Operational Risk and Insurance: Quantitative and Qualitative Aspects

38 Pages Posted: 14 May 2004

See all articles by Silke N. Finken

Silke N. Finken

DZ Bank AG; Goethe University Frankfurt

Date Written: April 30, 2004

Abstract

This paper incorporates insurance contracts into an operational risk model based on idiosyncratic and common shocks. A key feature of the approach is the explicit modelling of residual risk inherent in insurance contracts, such as counterparty default, payment uncertainty and liquidity risk due to delayed payments. Compared to the standard haircut approach, the net loss distribution exhibits a larger weight on the tail. Thereby an underestimation of extreme losses and loss clusters is avoided. The difference between the models is statistically significant for the means and the 99.9% - quantiles of the distribution.

Keywords: Operational risk, risk management, insurance, simulation

JEL Classification: C16, C69, G18, G21, G22

Suggested Citation

Finken, Silke N., Operational Risk and Insurance: Quantitative and Qualitative Aspects (April 30, 2004). EFMA 2004 Basel Meetings Paper. Available at SSRN: https://ssrn.com/abstract=493082 or http://dx.doi.org/10.2139/ssrn.493082

Silke N. Finken (Contact Author)

DZ Bank AG ( email )

60265 Frankfurt am Main
Germany

Goethe University Frankfurt ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

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