Operational risk modelled analytically

time-money

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).