Sensitivity analysis of scenario models for operational risk Advanced Measurement Approach

Scenario Analysis (SA) plays a key role in determination of operational risk capital under Basel II Advanced Measurement Approach. However, operational risk capital based on scenario data may exhibit high sensitivity or wrong-way sensitivity to scenario inputs. In this paper, we first discuss scenario generation using quantile approach and parameter estimation using quantile matching. Then we use single-loss approximation (SLA) to examine sensitivity of scenario based capital to scenario inputs.