Journal of Operational Risk

Combining scenario analysis with loss data in operational risk quantification

Eric W. Cope


A method for integrating information obtained from loss data and scenario analysis is presented in this paper. The stochastic process that generates losses within a unit of measure is modeled as a superposition of various subprocesses that characterize individual "loss-generating mechanisms" (LGMs). An end-to-end method is provided for identifying LGMs, performing scenario analysis and combining the outcomes with relevant historical loss data to compute an aggregate loss distribution for the unit of measure. It is shown how the preferred output of scenario analysis can be straightforwardly encoded into a nonparametric Bayesian framework for integration with historical loss data.

To continue reading...

You must be signed in to use this feature.

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 indvidual account here: