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  • Photo du rédacteurHélène Dufour

On Modeling Contagion in the Formation of Operational Risk Loss

We lay a theoretical foundation for the choice of an exponential–Pareto combined distribution to model the severity of the operational risk. We derive, on a theoretical basis, the functional form of the operational risk severity distribution. The resulting loss severity distribution, in theory, is consistent with the parametric distribution that previous empirical works suggest is the best fit for loss data.

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