Date of Award

5-11-2006

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Risk Management and Insurance

First Advisor

Sam Cox - Chair

Abstract

This dissertation investigates the implications of using the Advanced Measurement Approaches (AMA) as a method to assess operational risk capital charges for banks and insurance companies within Basel II paradigms and with regard to U.S. regulations. Operational risk has become recognized as a major risk class because of huge operational losses experienced by many financial firms over the last past decade. Unlike market risk, credit risk, and insurance risk, for which firms and scholars have designed efficient methodologies, there are few tools to help analyze and quantify operational risk. The new Basel Revised Framework for International Convergence of Capital Measurement and Capital Standards (Basel II) gives substantial flexibility to internationally active banks to set up their own risk assessment models in the context of the Advanced Measurement Approaches. The AMA developed in this thesis uses actuarial loss models complemented by the extreme value theory to determine the empirical probability distribution function of the overall capital charge in terms of various classes of copulas. Publicly available operational risk loss data set is used for the empirical exercise.

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Insurance Commons

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