Deep Fuzzy Credibility Surfaces for Integrating External Databases in the Estimation of Operational Value at Risk

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dc.contributor.affiliationPeña A., Information and Management Research Group, Business School, EAFIT University, Medellín, 055410, Colombia
dc.contributor.affiliationSepúlveda-Cano L.M., Information and Management Research Group, Business School, EAFIT University, Medellín, 055410, Colombia
dc.contributor.affiliationGonzalez-Ruiz J.D., Grupo de Investigación en Finanzas y Sostenibilidad, Departamento de Economía, Universidad Nacional de Colombia, Medellín, 050034, Colombia
dc.contributor.affiliationMarín-Rodríguez N.J., Grupo de Investigación en Ingeniería Financiera (GINIF), Programa de Ingeniería Financiera, Facultad de Ingeniería, Universidad de Medellín, Medellín, 050026, Colombia
dc.contributor.affiliationBotero-Botero S., Departamento de Ingeniería de la Organización, Facultad de Minas, Universidad Nacional de Colombia—Sede Medellín, Medellín, 050034, Colombia
dc.contributor.authorPeña A.; Sepúlveda-Cano L.M.; Gonzalez-Ruiz J.D.; Marín-Rodríguez N.J.; Botero-Botero S.
dc.date.accessioned2025-04-28T22:09:23Z
dc.date.available2025-04-28T22:09:23Z
dc.date.issued2024
dc.descriptionOperational risk (OR) is usually caused by losses due to human errors, inadequate or defective internal processes, system failures, or external events that affect an organization. According to the Basel II agreement, OR is defined by seven risk events: internal fraud, external fraud, labor relations, clients, damage to fixed assets, technical failures and failures in the execution and administration of processes. However, the low frequency with which a loss event occurs creates a technological challenge for insurers in estimating the operational value at risk (OpVar) for the protection derived from an organization’s business activities. Following the above, this paper develops and analyzes a Deep Fuzzy Credibility Surface model (DFCS), which allows the integration in a single structure of different loss event databases for the estimation of an operational value at risk (OpVar), overcoming the limitations imposed by the low frequency with which a risk event occurs within an organization (sparse data). For the estimation of OpVar, the DFCS model incorporates a novel activation function based on the generalized log-logistic function to model random variables of frequency and severity that define a loss event (linguistic random variables), as well as a credibility surface to integrate the magnitude and heterogeneity of losses in a single structure as a result of the integration of databases. The stability provided by the DFCS model could be evidenced through the structure exhibited by the aggregate loss distributions (ALDs), which are obtained as a result of the convolution process between frequency and severity random variables for each database and which are expected to achieve similar structures to the probability distributions suggested by Basel II agreements (lean, long tail, positive skewness) against the OR modeling. These features make the DFCS model a reference for estimating the OpVar to protect the risk arising from an organization’s business operations by integrating internal and external loss event databases. © 2024 by the authors.
dc.identifier.doi10.3390/sci6040074
dc.identifier.instnameinstname:Universidad de Medellínspa
dc.identifier.issn24134155
dc.identifier.reponamereponame:Repositorio Institucional Universidad de Medellínspa
dc.identifier.repourlrepourl:https://repository.udem.edu.co/
dc.identifier.urihttp://hdl.handle.net/11407/8827
dc.language.isoeng
dc.publisher.facultyFacultad de Ingenieríasspa
dc.publisher.programIngeniería Financieraspa
dc.relation.citationissue4
dc.relation.citationvolume6
dc.relation.isversionofhttps://www.scopus.com/inward/record.uri?eid=2-s2.0-85213489079&doi=10.3390%2fsci6040074&partnerID=40&md5=f610af45b8fcc03927248b8524fcdf0e
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dc.rights.accessrightsinfo:eu-repo/semantics/restrictedAccess
dc.sourceSci
dc.sourceSci.
dc.sourceScopus
dc.subjectBasel agreements
dc.subjectCredibility surfaces
dc.subjectDeep fuzzy clustering
dc.subjectLog-logistic activation function
dc.subjectOperational risk
dc.subjectOperational value at risk
dc.subjectBasel agreements
dc.subjectCredibility surfaces
dc.subjectDeep fuzzy clustering
dc.subjectLog-logistic activation function
dc.subjectOperational risk
dc.subjectOperational value at risk
dc.titleDeep Fuzzy Credibility Surfaces for Integrating External Databases in the Estimation of Operational Value at Risk
dc.typeArticle
dc.type.localArtículo revisado por paresspa
dc.type.versioninfo:eu-repo/semantics/publishedVersion

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