APPLICATION OF BAYESIAN INFERENCE IN DETERMINATING VAR (VALUE-AT-RISK) OPERATIONAL RISK
An Operational risk is a type of risk which is regulated in Basel II Accord. The difficulty in predicting this risk is mainly because its characteristics, e.g. ”low frequency but high severity” which can cause systemic hazard in financial institution. Therefore, the accuracy in determinating the...
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| Format: | Final Project |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/18579 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | An Operational risk is a type of risk which is regulated in Basel II Accord.
The difficulty in predicting this risk is mainly because its characteristics, e.g. ”low
frequency but high severity” which can cause systemic hazard in financial
institution. Therefore, the accuracy in determinating the VaR (Value-at-Risk) is
important.
In this final project, Bayesian Inference will be incorporated with LDA (Loss
Distribution Approach) and Montecarlo Simulation to model the estimation of VaR.
Bayesian Inference is specific inference’s technique where is user can update the
analysis when an expert opinion or the data become available. So the weakness of
LDA implementation which requires a lot of historical data could be solved with
giving an expert justification which is relevant to the data. |
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