SUMMARY

• Discusses key topics including acquisition and merger risk, reputation risk, e-commerce risk, compliance issues as well as the lessons that can be learnt from non-financial firms

• Reflecting the major developments that have occurred within operational risk practices, this completely updated edition will help to ensure that your systems comply with the very latest regulatory changes

• Presents you with the most recent regulatory developments and progress including changes to Basel II and responses to it; the Basel Committee's 'Quantitative Impact Study III' as well as new chapters on Moody's regulatory requirements

• Offers both qualitative and quantitative approaches from all quarters including respected industry participants, regulators, industry bodies and academics active in the area of operational risk

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  TABLE OF CONTENTS

Introduction: Operational Risk Management: New Disciplines, New Opportunities
Peyman Mestchian of SAS UK

MANAGING OPERATIONAL RISK

1. Operational Risk Management: The Solution is in the Problem
Peyman Mestchian of SAS UK

2. Managing Operational Risk
Robert Hübner, Mark Laycock and Fred Peemöller of Deutsche Bank AG

3. New Trends in Operational Risk Insurance for Banks
Brendon Young of ORRF and Simon Ashby of FSA

4. Operational Risk in Bank Acquisitions: A Real Options Approach to Valuing Managerial Flexibility
Hemantha S. B. Herath of University of Northern British Columbia and John S. Jahera Jr of Auburn University

5. How to Introduce an Effective Operational Risk Management Framework
Roland Kennett of BNP Paribas

RISK ANALYSIS, IDENTIFICATION & MODELLING

6. Operational Risk Capital Allocation and Integration of Risks
Elena A. Medova of University of Cambridge

7. Developing an Operational VAR Model using EVT
Marcelo Cruz of RiskMaths

8. The Use of Reliability Theory in Measuring Operational Risk
Patrick Mc Connell of Henley Management College

9. Model Selection for Operational Risk
Michel Crouhy of CIBC, Dan Galai of Hebrew University and Robert Mark of Black Diamond

10. Model Error in Enterprise-wide Risk Management: Insurance Policies with Guarantees
Andrea Consiglio of University of Cyprus and University of Palermo and Stavros A. Zenios of University of Cyprus and The Wharton School

PRACTICAL IMPLEMENTATION

11. Building and Running an Operational Loss Database
John Thirlwell of ORRF and BBA Global Operational Loss Database

12. Reputational Risk
Peter Schofield of American Express Corporate Audit

13. Corporate Reputation: Not Worth Risking
Knowledge@Wharton in association with Aon

14. Moody's Analytical Framework for Operational Risk Management of Banks
Brendon Young of Moody's Investors Service Limited

15. From Operational Risk to Operational Excellence
Barbara Döbeli of Swiss National Bank, Markus Leippold of University of Zurich and Paolo Vanini of University of Southern Switzerland and Zurich Cantonal Bank

16. The Legal and Regulatory View of Operational Risk
Dermot Turing of Clifford Chance LLP

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  QUOTES

″An outstanding work. No other book on operational risk offers the sophistication, clarity or breadth that this one does.″
Glyn Holton, Contingency Analysis

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  REVIEW

- These are reviews of the 1st edition of this title -
Reviewed by Glyn Holton, Contingency Analysis

The field of operational risk management is rapidly evolving. Among books on the topic, this edited collection is the gold standard.

In recent years, the field has progressed significantly due to the work of the Basle Committee. Operational risk entails a wide variety of contingencies. Some are better assessed qualitatively. Others are better managed quantitatively.

Quantification of operational risks depends upon two forms of data: *loss data, and *risk indication data.

The latter category includes such things as trading volume, the amount of overtime being performed by staff, systems down time, etc.

Modeling must incorporate both of the above retrospective (loss) and prospective (indicator) factors.Assessing risk is only part of the story. Risk managing it is a next step. Management is best handled at the functional unit level-legal risk managed by lawyers, settlement issues by back office personnel, etc. However, as with market and credit risk, there should be a centralized unit to facilitate the process.

Satisfying regulatory requirements and allocating capital for operational risk are still more tasks to be addressed.

The articles in this book cover the entire process, from data collection to modeling and capital calculation. Many of the authors work for large financial institutions or consulting organizations that are actively implementing the concepts they write about. Discussions are concise, insightful and mostly practical. They are clearly informed by the careful deliberations of the Basle Committee.

Overall, this is an outstanding work. No other book on operational risk offers the sophistication, clarity or breadth that this one does.

Reviewed by Satyajit Das, The Finance and Treasury Professional

The upsurge in quantification and management of operational risk has been one of the key trends in risk management in recent years. This is driven in part by the proposals in Basel II regarding a specific capital requirement for operational risk. Advances in Operational Risk focuses on issues relating to operational risk. The first part of the book provides an overview of the key approaches to management of operational risk. The second part is a collection of papers on new and emerging techniques for modelling operational risk, including reliability theory and extreme value theory. It also includes material on data issues and model selection. The final part examines regulatory issues as well as certain more tangential operational risk issues - reputational risk and e-commerce risk. Advances in Operational Risk is an interesting collection of papers that provides insight into the evolution of approaches to measurement and management of operational risk.

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  CONTRIBUTORS

Peyman Mestchian of SAS UK; Robert Hübner, Mark Laycock and Fred Peemöller of Deutsche Bank AG; Brendon Young of ORRF and Simon Ashby of FSA; Hemantha S. B. Herath of University of Northern British Columbia and John S. Jahera Jr of Auburn University; Roland Kennett of BNP Paribas; Elena A. Medova of University of Cambridge; Marcelo Cruz of RiskMaths; Patrick Mc Connell of Henley Management College; Michel Crouhy of CIBC, Dan Galai of Hebrew University and Robert Mark of Black Diamond; Andrea Consiglio of University of Cyprus and University of Palermo and Stavros A. Zenios of University of Cyprus and The Wharton School; John Thirlwell of ORRF and BBA Global Operational Loss Database; Peter Schofield of American Express Corporate Audit; Knowledge@Wharton in association with Aon; Brendon Young of Moody's Investors Service Limited; Barbara Döbeli of Swiss National Bank, Markus Leippold of University of Zurich and Paolo Vanini of University of Southern Switzerland and Zurich Cantonal Bank; Dermot Turing of Clifford Chance LLP
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