Complex op risk models open to high error, study finds

Measuring 1-in-1,000 year loss events ‘unrealistic’, researchers say

Mathematical error

Operational risk models used by many large banks could produce flawed results when calculating extreme tail risk events, upcoming research shows. The findings suggest that firms may be holding too much, or too little, capital against these risks.

The Basel II capital rules gave banks the option – at their regulators’ discretion – of using internal models to calculate their own Pillar 1 capital requirements for operational risk, under the advanced measurement approach (AMA), one of three options

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