Estimating Operational Risk Capital
J.D Opdyke, Operational Risk Portfolio Analytics, Team Leader, GE Capital
The Loss Distribution Approach (LDA) has become the industry standard for the largest US banks to estimate the operational risk capital they must hold for regulatory compliance. Under LDA, estimated capital is the Value-at-Risk of the aggregate loss distribution. Unfortunately the calculation of VaR can lead to capital estimates being inaccurate and the resulting capital overstatement is often enormous. In this session the speaker will discuss his work in developing a Reduced-bias Capital Estimator (RCE) which lowers capital requirements and is more in line with regulatory intentions.