Practical Calculation of Expected and Unexpected Losses in Operational Risk by Simulation Methods

Abstract

This paper explores the difficulties involved in quantitative measurement of operational risk and proposes simulation methods as a practical solution to obtain the distribution of total losses. It also introduces an example of the estimation of expected and unexpected losses, as well as Value-at-Risk (VaR), arising from operational risk.Operational risk; loss distribution; Value-at-Risk (VaR); simulation methods; Basel II