Keywords
aggregate loss distribution approach
subexponential distribution
extreme value theory
How to Cite
Abstract
This article aims to determine if advanced measuring models can be implemented to quantify operating risk in financial institutions in Colombia. Thus, two models are compared from the aggregate loss distribution approach, using Montecarlo simulations. That approach is based on the insurance risk theory to obtain loss distribution and estimate the value at risk at 99.9% for a one-year period. The first model, proposed by Böcker and Klüppelberg, is obtained by using a closed formula when losses adjust to a subexponential distribution. The second model is based on the extreme value theory. Upon applying it to the Colombian financial institutions’ losses due to operating risk in 2008, the author found that the maximum expected loss in 99.9% of the best cases is COP 3,200,000,000, which is considered “reasonable” based on their assets.
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