Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach
The dependencies between different business lines of banks have serious effects on the accuracy of operational risk estimation. Furthermore, the dependencies are far more complicated than simple linear correlation. While Pearson correlation coefficient is constructed based on the hypothesis of a lin...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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Wiley
2016-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2016/6546318 |
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| _version_ | 1832551618580578304 |
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| author | Wenzhou Wang Limeng Shi Xiaoqian Zhu |
| author_facet | Wenzhou Wang Limeng Shi Xiaoqian Zhu |
| author_sort | Wenzhou Wang |
| collection | DOAJ |
| description | The dependencies between different business lines of banks have serious effects on the accuracy of operational risk estimation. Furthermore, the dependencies are far more complicated than simple linear correlation. While Pearson correlation coefficient is constructed based on the hypothesis of a linear association, the mutual information that measures all the information of a random variable contained in another random variable is a powerful alternative. Based on mutual information, the generalized correlation coefficient which can capture both linear and nonlinear correlation can be derived. This paper models the correlation between business lines by mutual information and normal copula. The experiment on a real-world Chinese bank operational risk data set shows that using mutual information to model the dependencies between business lines is more reasonable than linear correlation. |
| format | Article |
| id | doaj-art-99824485cb414331ba96deb031c7ed7d |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2016-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-99824485cb414331ba96deb031c7ed7d2025-02-03T06:01:02ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2016-01-01201610.1155/2016/65463186546318Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information ApproachWenzhou Wang0Limeng Shi1Xiaoqian Zhu2School of Economics and Business Administration, Beijing Normal University, Beijing 100875, ChinaSchool of Economics and Business Administration, Beijing Normal University, Beijing 100875, ChinaInstitute of Policy and Management, Chinese Academy of Sciences, Beijing 100190, ChinaThe dependencies between different business lines of banks have serious effects on the accuracy of operational risk estimation. Furthermore, the dependencies are far more complicated than simple linear correlation. While Pearson correlation coefficient is constructed based on the hypothesis of a linear association, the mutual information that measures all the information of a random variable contained in another random variable is a powerful alternative. Based on mutual information, the generalized correlation coefficient which can capture both linear and nonlinear correlation can be derived. This paper models the correlation between business lines by mutual information and normal copula. The experiment on a real-world Chinese bank operational risk data set shows that using mutual information to model the dependencies between business lines is more reasonable than linear correlation.http://dx.doi.org/10.1155/2016/6546318 |
| spellingShingle | Wenzhou Wang Limeng Shi Xiaoqian Zhu Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach Discrete Dynamics in Nature and Society |
| title | Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach |
| title_full | Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach |
| title_fullStr | Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach |
| title_full_unstemmed | Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach |
| title_short | Operational Risk Aggregation Based on Business Line Dependence: A Mutual Information Approach |
| title_sort | operational risk aggregation based on business line dependence a mutual information approach |
| url | http://dx.doi.org/10.1155/2016/6546318 |
| work_keys_str_mv | AT wenzhouwang operationalriskaggregationbasedonbusinesslinedependenceamutualinformationapproach AT limengshi operationalriskaggregationbasedonbusinesslinedependenceamutualinformationapproach AT xiaoqianzhu operationalriskaggregationbasedonbusinesslinedependenceamutualinformationapproach |