TITLE:
Combining Internal Data with Scenario Analysis
AUTHORS:
Elias Karam, Frédéric Planchet
KEYWORDS:
Bayesian Inference, Operational Risk, MCMC
JOURNAL NAME:
Modern Economy,
Vol.6 No.5,
May
22,
2015
ABSTRACT: A Bayesian inference approach offers a methodical concept that combines
internal data with experts’ opinions. Joining these two elements with precision
is certainly one of the challenges in operational risk. In this paper, we are
interested in applying a Bayesian inference technique in a robust manner to be
able to estimate a capital requirement that best approaches the reality. In addition,
we illustrate the importance of a consistent scenario analysis in showing that
the expert opinion coherence leads to a robust estimation of risk.