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POT model for operational risk: Experience with the analysis of the data collected from Chinese commercial banks

Published on Dec 1, 2015in China Economic Review2.11
· DOI :10.1016/j.chieco.2015.07.003
Jinmian Han1
Estimated H-index: 1
(Northwest University (China)),
Wei Wang1
Estimated H-index: 1
(Northwest University (China)),
Jiaqi Wang1
Estimated H-index: 1
(Northwest University (China))
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Abstract
This paper takes 533 operational risk loss events publicly announced by Chinese commercial banks in the period of 1995-2012 as the sample, using Peaks over Threshold (POT) model to quantify the operational risk. The statistical data classification indicates the internal fraud is the main type of operational risk in Chinese commercial banks. This paper explains its causes from the perspective of behavioral finance. The results are as follows: first, Chinese commercial banks' operational risk loss events show an upward trend, then downward trend beginning in 2003 and currently an upward trend again; second, through the empirical analysis, this paper simulates the extreme value distribution function, finds the optimal threshold, and calculates the VaR and ES of the operational risk of Chinese commercial banks and compare them at different confidence levels; and third, in view of behavioral finance theory, overconfidence and loss aversion contribute to high internal fraud incidence.
  • References (8)
  • Citations (2)
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References8
Newest
Published on Jun 1, 2010in Journal of Operational Risk0.73
Hela Dahen4
Estimated H-index: 4
,
Georges Dionnne39
Estimated H-index: 39
,
Daniel Zajdenweber1
Estimated H-index: 1
Published on Oct 16, 2005
Alexander J. McNeil32
Estimated H-index: 32
,
Riidiger Frey1
Estimated H-index: 1
,
Paul Embrechts49
Estimated H-index: 49
This book provides the most comprehensive treatment of the theoretical concepts and modelling techniques of quantitative risk management. Whether you are a financial risk analyst, actuary, regulator or student of quantitative finance, Quantitative Risk Management gives you the practical tools you need to solve real-world problems. Describing the latest advances in the field, Quantitative Risk Management covers the methods for market, credit and operational risk modelling. It places standard indu...
Published on Jan 1, 2002
E.A. Medova1
Estimated H-index: 1
(University of Cambridge),
M.N. Kyriacou2
Estimated H-index: 2
(University of Cambridge)
Published on Nov 1, 2001in Technometrics2.09
Vartan Choulakian12
Estimated H-index: 12
,
M. A. Stephens33
Estimated H-index: 33
(SFU: Simon Fraser University)
Tests of fit are given for the generalized Pareto distribution (GPD) based on Cramer–von Mises statistics. Examples are given to illustrate the estimation techniques and the goodness-of-fit procedures. The tests are applied to the exceedances over given thresholds for 238 river flows in Canada; in general, the GPD provides an adequate fit. The tests are useful in deciding the threshold in such applications; this method is investigated and also the closeness of the GPD to some other distributions...
Published on Apr 1, 2001in Journal of Business & Economic Statistics2.72
Ronald Huisman18
Estimated H-index: 18
(EUR: Erasmus University Rotterdam),
Kees Koedijk10
Estimated H-index: 10
(UM: Maastricht University)
+ 1 AuthorsFranz C. Palm29
Estimated H-index: 29
(UM: Maastricht University)
Financial returns are known to be nonnormal and tend to have fat-tailed distributions. This article presents a simple methodology that accurately estimates the degree of tail fatness, characterized by the tail index, in small samples. Our method is a weighted average of Hill estimators for different threshold values that corrects for the small-sample bias apparent in the latter. Using this estimator we produce tail-index estimates for returns on exchange rates that are close to nonbiased estimat...
Published on Jan 1, 1958
E. J. Gumbel18
Estimated H-index: 18
Published on Apr 1, 1928
R. A. Fisher73
Estimated H-index: 73
(University of Cambridge),
L. H. C. Tippett1
Estimated H-index: 1
Cited By2
Newest
Xiaoqian Zhu7
Estimated H-index: 7
(CAS: Chinese Academy of Sciences),
Jianping LiXiaolei19
Estimated H-index: 19
(CAS: Chinese Academy of Sciences),
Dengsheng Wu10
Estimated H-index: 10
(CAS: Chinese Academy of Sciences)
The Basel Committee on Banking Supervision (BCBS) states that in addition to the fact that it lacks simplicity, the Advanced Measurement Approach (AMA) must be discarded because the flexibility of ...
Published on Feb 1, 2019in Physica A-statistical Mechanics and Its Applications2.50
Chi Xu1
Estimated H-index: 1
(ECUST: East China University of Science and Technology),
Chunling Zheng1
Estimated H-index: 1
+ 2 AuthorsNuan Wang1
Estimated H-index: 1
(ECUST: East China University of Science and Technology)
The Basel Accord requires commercial banks to meet a capital requirement for operational risk. Therefore, a reliable operational risk measurement is of great significance for financial institutions. In this paper, based on the framework of LDA, we propose a more appropriate model (Double Correlation model) in correlation structure construction, which considers both frequency correlation and mean severity correlation simultaneously. On this basis, annual loss scenarios for each risk cell are rest...
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