Case study of operational risk measurement, and what are the current models or methods for measuring

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What are the current models or methods for measuring operational risk: 1Basic Indicator Method.

Most of the banks that use the basic indicator method are smaller banks with relatively simple business scopes. This approach measures operational risk by looking at the bank as a whole, and only analyzes the level of operational risk of the bank as a whole, but does not analyze its composition. Basel II proposes to determine the capital provision required for operational risk based on the average total income of banks over the past three years, multiplied by 15%.

However, the problems with this approach are: first, it lacks sensitivity to the measurement of operational risk; Second, it is difficult to directly compare the operational risks of banks with those of other banks and the banking industry as a whole; Third, there is no way to accurately measure the operational risk of various business areas or product areas of the bank. Such an approach does not encourage banks to improve operational risk management.

2.Standard Law. Banks that use the standard approach are banks with limited data collection and analytical capabilities, and this method divides financial institutions into different lines of business, for each of which the capital required is B multiplied by the exposure factor.

Although this method is more detailed than the measurement of operational risk by the basic indicator method, it is only a simple extension of the basic indicator method and does not overcome the shortcomings of the basic indicator method. 3.Advanced metrics.

Most of the banks that use advanced metrics are very large and have very complex business portfolios. This approach calculates data collected internally for each line of business and each type of loss, some of which can also be collected externally. Most of this method is to build models to estimate the probability distribution of operational risk in a certain period of time (usually one year), and these quantitative models can be divided into two categories according to the different starting angles of the operational risk measurement

Top-down models and bottom-up models. The top-down model is based on the assumption that the internal operating conditions of the enterprise are not well understood, and it is used as a black box to analyze its market value, revenue, cost and other variables, and then calculate the value of operational risk. The bottom-up model is based on an in-depth study of the operating conditions of each business department of the enterprise and the loss events of various operational risks, and then considers the operational risks of each department separately, and finally adds them up as the operational risks of the entire enterprise.

Operational risk measurement refers to the quantification of operational risks in the business, and operational risk measurement is a part of operational risk management.