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Operational Risk [32]

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Bullet points include: See e.g. Ebnöther et al. (2001). Applied to Zurich Cantonal Bank, in context of Basel II. Small losses relatively frequent, ‘expected’ losses. Large losses relatively infrequent, ‘unexpected’ losses. Extreme Value Theory (EVT) potentially useful if processes involved are ‘predictable’, see later lecture. M processes (i = 1 to M) and J risk factors (j = 1 to J). Ni,j(t) = number of process i malfunctions due to risk factor j by time t. Wi,j,n(t) = per event severity of losses (for n = 1, ..., Ni,j(t), assumed to follow beta distribution Fi,j (min and max as assessed by experts)

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