Related papers: Should the advanced measurement approach be replac…
The Basel Committee on Banking Supervision proposed replacing all approaches for operational risk capital, including the Advanced Measurement Approach (AMA), with a simplified formula called the Standardized Measurement Approach (SMA). This…
On March 4th 2016 the Basel Committee on Banking Supervision published a consultative document where a new methodology, called the Standardized Measurement Approach (SMA), is introduced for computing Operational Risk regulatory capital for…
The management of operational risk in the banking industry has undergone significant changes over the last decade due to substantial changes in operational risk environment. Globalization, deregulation, the use of complex financial products…
Under the Basel II standards, the Operational Risk (OpRisk) advanced measurement approach allows a provision for reduction of capital as a result of insurance mitigation of up to 20%. This paper studies the behaviour of different insurance…
The largest US banks are required by regulatory mandate to estimate the operational risk capital they must hold using an Advanced Measurement Approach (AMA) as defined by the Basel II/III Accords. Most use the Loss Distribution Approach…
The financial crisis has dramatically demonstrated that the traditional approach to apply univariate monetary risk measures to single institutions does not capture sufficiently the perilous systemic risk that is generated by the…
Bank operational risk capital modeling using the Basel II advanced measurement approach (AMA) often lead to a counter-intuitive capital estimate of value at risk at 99.9% due to extreme loss events. To address this issue, a flexible…
We introduce a new approach for prudent risk evaluation based on stochastic dominance, which will be called the model aggregation (MA) approach. In contrast to the classic worst-case risk (WR) approach, the MA approach produces not only a…
Under the Basel II standards, the Operational Risk (OpRisk) advanced measurement approach is not prescriptive regarding the class of statistical model utilised to undertake capital estimation. It has however become well accepted to utlise a…
We propose a dynamical model for the estimation of Operational Risk in banking institutions. Operational Risk is the risk that a financial loss occurs as the result of failed processes. Examples of operational losses are the ones generated…
To quantify the operational risk capital charge under the current regulatory framework for banking supervision, referred to as Basel II, many banks adopt the Loss Distribution Approach. There are many modeling issues that should be resolved…
The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an…
The multi-armed bandit (MAB) is a classical online optimization model for the trade-off between exploration and exploitation. The traditional MAB is concerned with finding the arm that minimizes the mean cost. However, minimizing the mean…
To quantify an operational risk capital charge under Basel II, many banks adopt a Loss Distribution Approach. Under this approach, quantification of the frequency and severity distributions of operational risk involves the bank's internal…
In this paper, we propose SAMBA, a novel framework for safe reinforcement learning that combines aspects from probabilistic modelling, information theory, and statistics. Our method builds upon PILCO to enable active exploration using…
The European insurance sector will soon be faced with the application of Solvency 2 regulation norms. It will create a real change in risk management practices. The ORSA approach of the second pillar makes the capital allocation an…
Systemic risk measures were introduced to capture the global risk and the corresponding contagion effects that is generated by an interconnected system of financial institutions. To this purpose, two approaches were suggested. In the first…
We propose a robust risk measurement approach that minimizes the expectation of overestimation plus underestimation costs. We consider uncertainty by taking the supremum over a collection of probability measures, relating our approach to…
Systemic risk refers to the risk that the financial system is susceptible to failures due to the characteristics of the system itself. The tremendous cost of systemic risk requires the design and implementation of tools for the efficient…
By mid 2004, the Basel Committee on Banking Supervision (BCBS) is epected to launch its final recommendations on minimum capital requirements in the banking industry. Although there is the intention to arrive at capital charges which concur…