Quantifying hedge funds’ operational risks

This final piece of three on hedge funds’ operational risk investigates some areas of future development related to op risk quantification. This quantification requires an in-depth analysis of the probability and size of operational losses through various methods. By Jean-René Giraud

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To describe the full set of quantitative tools available for modelling operational risk is beyond this paper’s scope, but in this section, we aim to provide an overview of some techniques available, discussing benefits and limitations.1

Before attempting to provide any quantitative figure as a measure of risk, it is important to agree a definition of risk. Several definitions exist that could be applicable to operational risk:

• Risk as a mean outcome: actuarial view of event risk as the expected

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