A Dynamical Model for Operational Risk in Banks

• Main Author: Bardoscia, Marco
• Format: Journal Article
• Language: English
• Published: 26-07-2012
• Subjects: Quantitative Finance - Risk Management
• DOI: 10.48550/arxiv.1207.6186

Proceedings of the International School of Physics "Enrico Fermi"
176 (2012), pp. 399-403 Operational risk is the risk relative to monetary losses caused by failures
of bank internal processes due to heterogeneous causes. A dynamical model
including both spontaneous generation of losses and generation via interactions
between different processes is presented; the efforts made by the bank to avoid
the occurrence of losses is also taken into account. Under certain hypotheses,
the model can be exactly solved and, in principle, the solution can be
exploited to estimate most of the model parameters from real data. The
forecasting power of the model is also investigated and proved to be
surprisingly remarkable.