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Operational risk, uncertainty, and the economy: a smooth transition extreme value approach
Hambuckers, Julien; Kneib, Thomas
2018
 

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Keywords :
smooth transition; operational loss; Generalized Pareto
Abstract :
[en] We study the link between the distribution of extreme operational losses and the economic context, a fundamental task to compute adequate risk measures over time. In particular, we allow for time-varying dependencies due to structural changes, thanks to a newly-introduced smooth transition Generalized Pareto (GP) regression model. In this model, the parameters of the GP distribution are related to explanatory variables through regression functions, which depend themselves on a predictor of structural changes. Relying on this model, we study the dependence of the monthly loss severity distribution at UniCredit, over the period 2005-2014. As indicator of structural changes, we use the VIX, accounting for the general uncertainty on fi nancial markets. We show that both the goodness-of- t far in the tail and Value-at-Risk estimates of the total loss distribution obtained from such models are superior to a set of alternatives. We also show that in periods of high uncertainty, conditions favorable to a lax monetary policy are synonym of an increased likelihood of extreme losses. Finally, we discover evidence of a self-inhibition mechanism, where a high number of losses in a recent past are indicative of less extreme losses in the future, probably due to improved monitoring.
Disciplines :
Quantitative methods in economics & management
Author, co-author :
Hambuckers, Julien ;  Université de Liège - ULiège > HEC Liège : UER > Finance de Marché
Kneib, Thomas;  University of Goettingen > Chair of Statistics
Language :
English
Title :
Operational risk, uncertainty, and the economy: a smooth transition extreme value approach
Publication date :
April 2018
Event name :
UNIL Internal Seminar, Operation department
Event date :
30-04-2018
Audience :
International
Available on ORBi :
since 05 September 2019

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