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READING 66: OPERATIONAL RISK #76

Open Grefer opened 4 years ago

Grefer commented 4 years ago

https://www.melonsblog.cn/2020/02/reading-66-operational-risk.html#more

Grefer commented 4 years ago

The construction of the operational risk capital for a bank requires that risks be aggregated over each of the seven types of risk and each of the eight business lines that are relevant for the particular bank.

Grefer commented 4 years ago

Current Basel Committee proposals require that operational risk capital be calculated at the 99.9th percentile level over a 1-year horizon.

Grefer commented 4 years ago

The Basel definition excludes credit or market risks. All of the other choices are incorporated in the definition of operational risk.

Grefer commented 4 years ago

The basic indicator approach is more common for less-sophisticated, typically smaller banks. There is only one indicator of operational risk: gross income.

Grefer commented 4 years ago

It is common to use a Poisson distribution to model loss frequency. A Poisson distribution has a single parameter that can be varied to accurately describe loss data. Loss severity is often modeled with a lognormal distribution.

Grefer commented 4 years ago

An RCSA provides no independent verification of risk measurement and identification.

Grefer commented 4 years ago

Operational loss data available from data vendors tends to be biased towards large losses and are most useful for determining relative loss severity

Grefer commented 4 years ago

In the standardized approach to calculating operational risk, a bank’s activities are divided up into several different business lines, and a beta factor is calculated for each line of business. The bank does not have to estimate unexpected losses under the standardized approach.