APPLICATION OF ADVANCED APPROACHES FOR CALCULATION OF OPERATIONAL RISK WITHIN FINANCIAL INSTITUTIONS

The aim of this paper is to describe and apply advanced approaches for calculation of operational risk in line with the Loss Distribution Approach. At first, classical statistical distributions for modeling the number of losses and their severities are described together with special techniques how to aggregate these distributions together in order to get the probability distribution of the total loss. Then an extreme value theory is presented for cases when empirical loss data have a heavier right tail in comparison with standard probability distributions. In the application part both concepts (classical and extreme value theory) of the Loss distribution approach are applied on operational risk loss databases of Czech financial institution. Obtained results have shown the importance of the application of extreme value theory in the field of operational risk modeling.