Theoretical Sensitivity Analysis for Quantitative Operational Risk Management (Kato T.)

Basel I-III Risk-taking and Risk Management

Abstract We study an asymptotic behaviour of the difference between value-at-risks VaR(L) and VaR(L+S) for heavy-tailed random variables L and S as an application to sensitivity analysis of quantitative operational risk management in the framework of an advanced measurement approach (AMA) of Basel II. We have different types of results according to the magnitude relationship of thickness of tails of L and S. Especially if the tail of S is enough thinner than the one of L, then VaR(L + S) - VaR(L) is asymptotically equivalent to an expected loss of S when L and S are independent. We also give some generalized results without the assumption of independence.
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Libref/ Kato T. (2011) "Theoretical Sensitivity Analysis for Quantitative Operational Risk Management", Quantitative Finance Paper No. 1104.0359, pp. 1 - 17
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