Quants propose new method of calculating op risk VAR

So-called ‘incremental value-at-risk’ offers future snapshot of op risk exposure, authors say

Bright idea

A new method of calculating value-at-risk claims to provide banks with an accurate estimate of operational risk exposure without having to run a costly and time-consuming VAR assessment. The technique could also have applications beyond op risk, for validating traditional risk models.

The approach uses synthetic data, extrapolated from existing loss information, to adjust existing VAR numbers. The researchers, Peter Mitic, James Cooper and Nicholas Bloxham, all of Santander, dub the method

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