xmlui.ArtifactBrowser.SimpleSearch.filter.source:Scientific papers of the University of Pardubice. Series D, Faculty of Economics and Administration. 16 (1/2010)
ISSN:1211 – 555X
Abstract:
In this paper we calculate capital requirement for operational risk for one of the
biggest Czech banks. We have utilized two main approaches described in the literature: the
Loss Distribution Approach and Extreme Value Theory, in which we have used two estimation
methods - the standard maximum likelihood estimation method and the probability weighted
moments (PWM). Our results proved a heavy-tailed pattern of operational risk data as
documented by many researchers. Additionally, our research showed that the PWM is quite
consistent when the data is limited as it was able to provide reasonable and consistent capital
estimates. From a policy perspective it should be hence noted that banks from emerging
markets such as the Central Europe are also able to register operational risk events and the
distribution of these risk events can be estimated with a similar success than those from more
mature markets.