Journal of Operational Risk

Risk.net

A comparison of loss aggregation methods for operational risk

Grigory Temnov, Richard Warnung

ABSTRACT

In this paper we address the problem of modeling and measuring operational risk. First, we introduce general ideas about operational risk: a brief description of the methodology for selecting models for loss severity and frequency is given. Then we turn to the problem of loss aggregation. Coming from insurance mathematics, there are, in general, three popular and commonly used ways to aggregate operational risk: a Monte Carlo approach, an approach based on the Fourier transformation and a recursion approach. These three methods and their applications are therefore discussed in this paper. For the recursion approach a reinterpretation of the portfolio credit risk model CreditRisk+ is used. The three methods are compared concerning speed and accuracy.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

If you already have an account, please sign in here.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: