A knowledge based approach to loss severity assessment in financial institutions using Bayesian networks and loss determinants

European Journal of Operational Research

Volumn 207, Issue 3, 2010, Pages 1635-1644

  Häger, David ^a,b   Andersen, Lasse B ^a  

^a UNIVERSITY OF STAVANGER   (Norway)

^b Bayes Risk Management AS   (Norway)

Author keywords

Advanced measurement approach; Bayesian networks; Loss determinants; OR in financial institutions; Risk management

Indexed keywords

ADVANCED MEASUREMENT APPROACH; BASEL II; CATASTROPHIC CONSEQUENCES; DATA VOLUME; EQUITY CAPITAL; EXPERT KNOWLEDGE; FINANCIAL INSTITUTION; HISTORICAL DATA; KEY ELEMENTS; KNOWLEDGE-BASED APPROACH; LOSS PREDICTION; MARKET VOLATILITY; OPERATIONAL RISKS; POTENTIAL LOSS; QUANTITATIVE ANALYSIS; SEVERITY MODEL;

DISTRIBUTED PARAMETER NETWORKS; FINANCE; FORECASTING; INFERENCE ENGINES; INTELLIGENT NETWORKS; KNOWLEDGE BASED SYSTEMS; RISK ANALYSIS; RISK MANAGEMENT; SOCIETIES AND INSTITUTIONS;

BAYESIAN NETWORKS;

EID: 77957709199     PISSN: 03772217     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.ejor.2010.06.020     Document Type: Article

References (48)

1. Adusei-Poku, K., 2005. Operational Risk Management - Implementing a Bayesian Network for Foreign Exchange and Money Market Settlement, Presented for the degree of Doctor of Philosophy at the Faculty of Economics and Business Administration of the University of Göttingen.
2. Agenarisk, 2009. Bayesian Network and Simulation Software. .
3. C. Alexander Operational Risk: Regulation, Analysis and Management 2003 Pearson Education Limited
4. G. Álvarez Operational risk economic capital measurement: mathematical models for analysing loss data E. Davis, The Advanced Measurement Approach to Operational Risk 2006 Risk Books London
5. U. Andes, and G.J. van den Brink Implementing a Basel II Scenario-Based AMA for Operational Risk M.K. Ong, The Basel Handbook A Guide for Financial Practitioners 2004 Risk Books
6. Bank of England, 1995. Extract from: Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings, July 1995. .
7. S.J. Brown, and O.W. Steenbeek Doubling: Nick Leeson's trading strategy Pacific-Basin Finance Journal 9 2 2001 83 99
8. Bruce, J.C., 2007. The Role of Structural Factors Underlying Incidents of Extreme Opportunism in Financial Markets. Submitted for the Degree of Doctor of Philosophy, University of South Africa.
9. H. Bühlmann Mathematical Methods in Risk Theory Die Grundlehren der mathematischen Wissenschaften in Einzeldarstellungen, Band vol. 172 1970 Springer-Verlag Heidelberg
10. Burke, S., 2004. Currency Exchange Trading and Rogue Trader John Rusnak, Concept 2004. .
11. Cagan, P., Lantsman, Y., 2008. The Cyclicality of Operational Risk: Tracking the Phenomenon. Published in Operational Risk Management Systems 2008 Navigated Through a Fragmented Market. Research Report No. RR08011, Chartis Research Ltd.
12. Chavez-Demoulin, V., Embrechts, P., 2004. Advanced Extremal Models for Operational Risk. Technical Report, ETH Zurich.
13. A. Chernobai, and S.T. Rachev Applying robust methods to operational risk modelling Journal of Operational Risk 1 1 2006 27 41
14. Chernobai, A., Jorin, P., Yu, F., 2008. The Determinants of Operational Losses, unpublished manuscript, current version: 7th January 2008.
15. E. Cope, and A. Labbi Operational loss scaling by exposure indicators: Evidence from the ORX database Journal of Operational Risk 3 4 2008 25 45
16. R.J. Cowell, R.J. Verral, and Y.K. Yoon Modelling Operational Risk with Bayesian Networks The Journal of Risk and Insurance 74 4 2007 795 827
17. Crapp, H., Levy, A., Watchorn, E., Wilson, S., 2007. Scenario based approaches - The Australian experience. In: Second CEBS-NOVIO Meeting on Implementation Issues of AMA Models, Rome, May 15-16.
18. Dahen, D., Dionne, G., 2007. Scaling Model for the Severity and Frequency of External Operational Loss Data, Canada Research Chair in Risk Management Working Paper 07-01.
19. de Fontnouvelle, P., 2008. 2007 U.S. Operational Risk Range of Practice - An Update. In: Presentation Given at the Conference New Challenges for Operational Risk Measurement and Management, Federal Reserve Bank of Boston, 14-15 May.
20. Dutta, K., Perry, J., 2007. A Tale of Tails: An Empirical Analysis of Loss Distribution Models for Estimating Operational Risk Capital, FRB of Boston Working Paper No. 06-13.
21. P. Embrechts, H. Furrer, and R. Kaufmann Quantifying regulatory capital for operational risk Derivatives Use, Trading & Regulation 9 3 2003 217 233
22. IMD International, 2002a. The Barings Collapse (A): Breakdowns in Organizational Culture and Management. International Institute for Management (IMD).
23. IMD International, 2002b. The Barings Collapse (B): Failures in Control and Information Use. International Institute for Management (IMD).
24. Jenkinson, D., 2005. The Elicitation of Probabilities - A Review of the Statistical Literature, Bayesian Elicitation of Experts' Probabilities (BEEP), Working Paper.
25. F.V. Jensen Bayesian Networks and Decision Graphs 2001 Springer
26. D.N. Kleinmuntz, M.G. Fennema, and M.E. Peecher Conditioned assessment of subjective probabilities: Identifying the benefits of decomposition Organizational Behaviour and Human Decision Process 66 1 1996 1 15
27. H. Langseth, T.D. Nielsen, R. Rumí, and A. Salmerón Inference in hybrid bayesian networks Reliability Engineering and System Safety 94 10 2009 1499 1509
28. S.L. Lauritzen, and F. Jensen Stable local computation with conditional Gaussian distributions Statistics and Computing 11 2 2001 191 203
29. S. Mittnik, and I. Starobinskaya Modelling Dependencies in Operational Risk with Hybrid Bayesian Networks Methodology and Computing in Applied Probability 2007 Springer Netherlands
30. I.A. Moosa A critique of the advanced measurement approach to regulatory capital against operational risk Journal of Banking Regulation 9 3 2008 151 164 (14)
31. Na, H.S., van den Berg, J., Miranda, L.C., Leipoldt, M., 2005. Data Scaling for Operational Risk Modelling. Erasmus Research Institute of Management. Report Series Research in Management, Report Series reference number ERS-2005-092-LIS, Erasmus University.
32. H.S. Na, J. van den Berg, L.C. Miranda, and M. Leipoldt An econometric model to scale operational losses Journal of Operational Risk 1 2 2006 11 31
33. M. Neil, M. Tailor, and D. Marquez Inference in Bayesian networks using dynamic discretization Journal of Statistics and Computing 17 3 2007 219 233
34. M. Neil, D. Häger, and L.B. Andersen Modelling risk in financial institutions using hybrid dynamic Bayesian networks Journal of Operational Risk 4 1 2009 1 31
35. J. Nelehová, P. Embrechts, and V. Chavez-Demoulin Infinite-mean models and the LDA for operational risk Journal of Operational Risk 1 1 2006 3 25
36. J. Pearl, and S. Russel Bayesian networks M.A. Arbib, Handbook of Brain Theory and Neural Networks 2002 MIT Press
37. A. Peccia Using operational risk models to manage operational risk C. Alexande, Operational Risk - Regulation, Analysis and Management 2003 Prentice Hall
38. J.P. Peters, and G. Hübner Modelling operational risk based on multiple experts' opinion G.N. Gregoriou, Operational Risk Toward Basel 2009 Wiley & Sons 3 21
39. G.W. Peters, and S.A. Sisson Bayesian inference, Monte Carlo sampling and operational risk Journal of Operational Risk 1 3 2006
40. Price Waterhouse Coopers, 2004. Investigation into Foreign Exchange Losses at the National Australia Bank, Price Waterhouse Coopers, 12 March.
41. Rippel, M., Teplý, P., 2008. Operational Risk - Scenario Analysis. Institute of Economic Studies Working Paper No. 15/2008, Faculty of Social Sciences, Charles University, Prague.
42. sbAMA Working Group, 2003. Scenario-based AMA. Working Paper, London.
43. P.V. Shevchenko, and M.V. Wüthrich The structural modelling of operational risk via Bayesian inference Journal of Operational Risk 1 3 2006
44. J. Shih, A. Samad-Khan, and P. Medapa Is the size of operational loss related to firm size? Operational Risk January 2000
45. Societe Generale General Inspection Department, 2008. Mission Green - Summary Report, Societe Generale, 20th May, 2008. .
46. Sungard Bancware ERisk, 2001. Daiwa Bank, An ERisk.com Case Study. .
47. Wachtell, Lipton, Rosen, Katz & Promontory Financial Group, 2002. Report to the Boards of Allied Irish Banks, p.l.c., Allfirst Financial Inc. and Allfirst Bank Concerning Currency Trading Losses, March 12.
48. Watchorn, E., 2007. Applying a Structured Approach to Operational Risk Scenario Analysis in Australia. APRA Information Paper, September.