This paper looks at the application of operational risk ‘models’ under Pillar 1 of the Basel II regulatory framework. It looks both at the conceptual problems underlying the definition of operational risk and the practical issues of data collection associated with modeling operational risk events. It also looks at operational value at risk (Op. VaR) as a measure of operational risk and the issues associated with implementing such a measure; it contrasts Op. VaR with an expected shortfall approach as used in the insurance industry. When managing operational risk, it is proposed that a process control approach operational risk management has many advantages especially when implemented through conformance to ISO and similar standards.
This paper looks at the application of operational risk ‘models’ under Pillar 1 of the Basel II regulatory framework. It looks both at the conceptual problems underlying the definition of operational risk and the practical issues of data collection associated with modeling operational risk events. It also looks at operational value at risk (Op. VaR) as a measure of operational risk and the issues associated with implementing such a measure; it contrasts Op. VaR with an expected shortfall approach as used in the insurance industry. When managing operational risk, it is proposed that a process control approach operational risk management has many advantages especially when implemented through conformance to ISO and similar standards.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.