Journal of Operational Risk

Marcelo Cruz

Chief Risk Officer, Aviva

Welcome to the opening issue to the third year of The Journal of Operational Risk. I speak on behalf of the editorial board to say that we are all very excited with the quality of the journal and how well received this publication has been. Among the portfolio of Risk Journals we are one of the most successful in terms of subscriptions. Furthermore, articles published in the Journal have been referred to in many other publications and conferences, which is certainly a measure of our success. A prime example of this is our participation for the first time at OpRisk USA ( this February, held in New York, and the forthcoming OpRisk Europe in April (, to be held in London. In association with OpRisk & Compliance we are hosting a full day preconference seminar with speakers who are researchers and practitioners that have been previously published in the Journal, talking about the most advanced research in operational risk. Being a practitioner myself, I can see the impact that these articles are making in terms of bringing the operational risk industry to a higher level of play.

I would like to thank you all for this achievement. I also hope readers can appreciate the enormous amount of effort put into getting the final product ready for distribution. I would like to thank everyone who is involved in the publication process for your efforts and long hours of dedication. A particular thanks to Lucie Carter who has been instrumental in this success.

In its brief history The Journal of Operational Risk has published 29 articles and 12 forum papers. The subjects of the articles published were very diverse but a few key themes stand out as very popular among contributors. The application of extreme value theory to operational risk has been the key subject of five articles, for example. An emerging, popular subject is the application of Bayesian methods, such as credibility theory, to aggregate the diverse types of data required to come up with the estimation of operational risk capital. So far six articles have proposed using this method to aggregate the results showing very sophisticated models. Overall the issue of combining the different types of data has been one of the most popular representing more than one-third of the articles published. Another popular subject has been the impact of data issues (truncation, missing, etc) in parameter estimation. At least three articles have proposed a completely different view on operational risk and this type of challenge is always very much appreciated by the board and the readers.

We are very much interested in new papers on any subject related to operational risk. Papers do not necessarily need to be quantitative but need to be of high quality as they will be peer-reviewed. We are particularly interested in topical papers that analyze current operational risk related issues, for example, the recent fraud at Société Générale. The Journal of Operational Risk would welcome articles that analyze what happened in detail and can extract lessons learnt from this episode or any other that can help improve standards within the industry.

Research Papers

In this issue there are three technical papers and one forum article. In the first paper, “A comparison of loss aggregation methods for operational risk,” Temnov and Warnung compare the application of three methods to aggregate loss distributions, Monte Carlo simulation, fast Fourier transformation and recursion in terms of accuracy and speed.

In the second paper, “Dynamic Bayesian models as an alternative to the estimation of operational risk measures,” Carvalho et al use Bayesian methods to aggregate data and measure operational risk and compare this method with more traditional approaches.

In the third paper, “Estimation of operational risk capital charge under parameter uncertainty,” Shevchenko discusses the importance of the uncertainty of parameter estimations particularly in high quantiles, which is often overlooked by practitioners.

Operational Risk Forum

In the Forum section, Kilavuka wrote a piece on “Managing operational risk capital in financial institutions,” which discusses concepts of risk limits and risk budgets and their application to operational risk.

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