Correlation and Arithmetic of Operational Risk Measurement Basing on Loss Distribution Approach
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Abstract:
Based on the principles of operational risk measurement provided by Basel II,the paper discusses the problem of operational risk correlations among different business lines / risk types.The correlation coefficients between the aggregate losses among different business lines / risk types are calculated.Copula arithmetic is put forward to compute correlation coefficients matrix of aggregate losses.Besides,the result is used to calculate the capital requirement of operational risk.
