Comparing alternative mixing models for external operational risk data

Mixing, not scaling, best approach for using external losses

Colour mix

The regulatory definition of operational risk is the loss expected over the next 12 months resulting from inadequate or failed internal processes, people and systems or from external events (excluding reputational and strategic risk).

While market or credit risk can be thought of as a function of the bank's portfolio, operational risk should be treated as a function of the bank's processes and governance. It is therefore difficult to compare the operational risk across banks as it depends on

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