Measuring the capital charge for operational risk of a bank with the large deviation approach
In this paper, the large deviation approach for computing the capital charge for operational risk of a bank is explored. Firstly, the negatively-associated structure is utilized to measure the dependence between distinct operational loss cells. Secondly, the lower and upper bounds of the tail distribution function of total aggregated loss processes are determined. In addition, first order approximations using a value-at-risk measure are derived. Finally, an important example calculating the capital charge for operational risk under the class of a heavy-tailed distribution is provided. (C) 2013 Elsevier Ltd. All rights reserved.
operational risk large deviation approach negatively associated extended regular variation multivariate dependence value at risk