Custom models work better for op risks, research finds
Bayesian approach touted for mis-selling and other management failures
One-size-fits-all models are inferior to custom-built alternatives when estimating specific operational risks, according to new research. The findings apply particularly to the dangers arising from internal management failures, such as payouts for the mis-selling of retail financial products.
In the UK, banks have paid a combined £24.8 billion over the past five years for the mis-selling of payment protection insurance to retail borrowers.
In a forthcoming paper for the Journal of Operational
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