Abstract

FRANCO ARBELAEZ, Luis Ceferino  and  MURILLO GOMEZ, Juan Guillermo. Loss Distribution Approach (LDA): actuarial methodology apply to operational risk. Rev. ing. univ. Medellin [online]. 2008, vol.7, n.13, pp.143-156. ISSN 1692-3324.

This paper is the result of a research project on integrated management of operational risk, promoted by Universidad de Medellin Research Vice-Principal's Office and co-financed by a financial company. It presents an application of the LDA model, which is based on data collection of historical losses (frequency and severity), which are recorded internally in organizations. Such data can be supplemented with external data. These losses are classified in a matrix that relates business lines of the organization and operational loss events, from which capital charge is estimated. The application was developed for a financial institution. The paper is organized as follows: The first section is introductory to the subject. The second part formally presents a LDA model; then an application is made, and in the fourth part some conclusions are presented.

Keywords : Risk; operational risk; LDA; capital charge.

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