Wednesday, June 6, 2012

Harnessing the Fat Tails - The Case of Operational Risk Measurement

Johannes Voit
(German Savings Banks Association, Berlin)

Abstract: One of the stylized facts of financial markets contents that the distribution functions describing market data are fat-tailed. Nevertheless, most of the risk-management instruments rely directly or indirectly on normal distributions. The loss distributions of operational incidents in banks are both heavily skewed and extremely fat-tailed. In my talk, I will discuss the challenges of measuring operational risk in banks, and how they were mastered in a network of 430 independent savings banks in Germany. In particular, I will describe the development and calibration of a risk measurement tool which accurately models and aggregates the fat-tailed distributions found from almost 50,000 loss data.

Wednesday, June 6, 2012
Time: 11h00
Room: Sala Delta, Edificio Quelhas, ISEG