According to the last proposals by the Basel Committee, banks are allowed to use statistical approaches for the computation of their cap- ital charge covering nancial risks such as credit risk, market risk and operational risk. It is widely recognized that internal loss data only do not suce to provide accurate capital charge in nancial risk management, especially for high severity and low frequency events. Financial institutions typically use external loss data to augment the available evidence and, therefore, provide more accurate risk estimates. Rigorous statistical treatments are required to make internal and external data comparable and to ensure that merging the two databases leads to unbiased estimates. The goal of this paper is to propose a correct statistical treatment to make external and internal data comparable and, therefore, mergeable. Such methodology augments internal losses with relevant, rather than redundant, external loss data.
A threshold based approach to merge data in financial risk management
FIGINI, SILVIA;GIUDICI, PAOLO STEFANO;
2010-01-01
Abstract
According to the last proposals by the Basel Committee, banks are allowed to use statistical approaches for the computation of their cap- ital charge covering nancial risks such as credit risk, market risk and operational risk. It is widely recognized that internal loss data only do not suce to provide accurate capital charge in nancial risk management, especially for high severity and low frequency events. Financial institutions typically use external loss data to augment the available evidence and, therefore, provide more accurate risk estimates. Rigorous statistical treatments are required to make internal and external data comparable and to ensure that merging the two databases leads to unbiased estimates. The goal of this paper is to propose a correct statistical treatment to make external and internal data comparable and, therefore, mergeable. Such methodology augments internal losses with relevant, rather than redundant, external loss data.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.