Estimate Capital for Operational Risk Using Peak Over Threshold Method

Operational risk is inherent in bank activities. To cover this risk a bank reserves a fund called as capital. Often a bank uses Basic Indicator approach (BIA), Standardized Approach (SA), or Advanced Measurement Approach (AMA) for estimating the capital amount. B1A and SA are less -objective in comparison to AMA, since BIA and SA use non -actual loss data while AMA use the actual one. In this research, we define the capital as an OpVaR (i.e. the worst loss at a given confidence level) which will be estimated by Peak Over Threshold Method.