Journal of Operational Risk

Risk.net

A mixing model for operational risk

Jim Gustafsson, Jens Perch Nielsen

ABSTRACT

External data can often be useful in improving estimation of operational risk loss distributions. This paper develops a systematic approach that incorporates external information into internal loss distribution modeling. The standard statistical model resembles Bayesian methodology or credibility theory in the sense that prior knowledge (external data) has more weight when internal data is scarce than when internal data is abundant.

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