Two-regime approach saves up to 30% op risk capital

Modelling shift to 'crisis mode' mitigates pro-cyclical calculations

Using the two-regime model demonstrated significant benefits

Operational risk losses can be better predicted and capital more accurately computed – assuming banks operate in one of two regimes at any point, according to forthcoming research using loss data from US banks.

Georges Dionne and Samir Hassani of Canada's HEC Montreal business school used data over the period 2001 to 2010 to show operational risk losses were not homogenous over time.

Instead, institutions tend to alternate between long stretches of a baseline ‘low' regime, in which losses

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Calibrating interest rate curves for a new era

Dmitry Pugachevsky, director of research at Quantifi, explores why building an accurate and robust interest rate curve has considerable implications for a broad range of financial operations – from setting benchmark rates to managing risk – and hinges on…

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