Operational risk modelled analytically II: classification invariance

In a simple model, Vivien Brunel establishes the properties of an operational risk model under the requirement of classification invariance

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It is critical to have a robust and sound methodology for operational risk assessment and capital measurement. The most common approach for measuring operational risk within a bank – namely the loss distribution approach (LDA) – is based on the frequency and severity estimation from observed events.

However, it is challenging to build accurate and robust estimations in this framework, as shown by Cope et al (2009).

One major issue of the LDA is pooling observed events

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Investment banks: the future of risk control

This Risk.net survey report explores the current state of risk controls in investment banks, the challenges of effective engagement across the three lines of defence, and the opportunity to develop a more dynamic approach to first-line risk control

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