A model future (part II)
In the second part of his column on how factor models can improve operational risk effectiveness, Marcelo Cruz looks at the issues involved in determining correlations between factors and losses, and suggests how best to insert factors into the model framework
In this column last month, I started a discussion about so-called ‘factor models’. These aim to find relationships between internal and external factors and operational risk. Factor models are so attractive because they can bring to the operational risk framework the same relationship between risk and business managers that exists in market and credit risk.
The lower profile of operational risk
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