Regulators require banks to use an internal model to compute a capital charge for operational risk, which is thought to be sensitive to assumptions on dependence between losses that still remain a matter of debate. Vivien Brunel proposes an analytical way to quantify this risk, and shows that uniform correlation is a robust assumption for measuring capital charges CLICK HERE TO VIEW THE PDF The current regulatory framework allows banks to compute their capital charge for operational risk under an internal model, which is often based on the loss distribution approach (LDA). Loss distributions are calibrated at the cell level (a cell is the elementary risk unit per business line and type of risk) and the bank's capital charge is estimated by aggregating cell loss distributions under some dependence assumption (Chernobai, Rachev & Fabozzi 2007)....
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