Combining Internal Data with Scenario Analysis

Elias Karam, Frédéric Planchet

Laboratoire SAF EA2429, ISFA, Université Claude Bernard Lyon 1, Université Lyon, Lyon, France.

DOI: 10.4236/me.2015.65055                

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.

Keywords

Bayesian Inference, Operational Risk, MCMC

Conflicts of Interest

The authors declare no conflicts of interest.

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