Journal of Operational Risk

Risk.net

Modeling and measuring multivariate operational risk with Lévy copulas

Klaus Böcker, Claudia Klüppelberg

ABSTRACT

Simultaneous modeling of operational risks occurring in different event type/business line cells poses a serious challenge for operational risk quantification. Here we invoke the new concept of Lévy copulas to model the dependence structure of operational loss events. We explain the consequences of this dependence concept for frequencies and severities of operational risk in detail. For important examples of the Lévy copula and heavy-tailed generalized Pareto distributed tail severities we derive firstorder approximations for multivariate operational value-at-risk.

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