Value at Risk and Bank Capital Management

130 CHAPTER

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5 Operational Risk and Business Risk

implies that, even if frequencies were perfectly correlated, it could be possible to defi ne

an upper boundary for operational loss correlations that appears to be very low, especially

for high-loss businesses. In fact, in those businesses the primary driver for operational

risk capital is the variability in loss severity, and hence severity independence would

largely dominate dependence in loss frequencies. Of course, if the risk manager wanted

to model some form of dependence across different business lines, a relevant issue would

also be represented by the technique to be adopted for th ...