An extended Hidden Markov Model with an auxiliary variable models dependencies between operational risk losses and macroeconomic covariates, calibrated using the EM algorithm.
An explanatory note on the Basel II IRB risk weight functions
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Modeling dependency between operational risk losses and macroeconomic variables using Hidden Markov Models
An extended Hidden Markov Model with an auxiliary variable models dependencies between operational risk losses and macroeconomic covariates, calibrated using the EM algorithm.