Behavioural Risk Management

Behavioural Risk Management

Operational Risk Capital Models (2nd edition)

Rafael Cavestany is back as the sole editor of this updated edition of Operational Risk Capital Models. Since the fall out of the Great Financial Crisis (GFC), regulators have been developing new guidance for financial institutions which define plausible responses to severe-impact scenarios (such as the GFC) for operational disruptions to critical business processes. How timely then, that this new edition should be written during a pandemic which has had far-reaching effects across the global economy and society.

Cavestany has reassembled a roster of operational-risk experts to pervasively analyse, quantify and identify the potential economic and operative consequences of this type of impact scenario through a more granular and critical tool: operational risk capital modelling.

This book provides the experiences of its authors during the successful implementation in organisations of operational risk capital models, best practices and industry standards, and the integration of the capital results into day-to-day risk management. The authors use the challenges described in the chapters to define the required elements in the operational risk capital modelling framework.

£145.00
Availability: In stock
ISBN
9781782724223
 

Rafael Cavestany is back as the sole editor of this updated edition of Operational Risk Capital Models. Since the fall out of the Great Financial Crisis (GFC), regulators have been developing new guidance for financial institutions which define plausible responses to severe-impact scenarios (such as the GFC) for operational disruptions to critical business processes. How timely then, that this new edition should be written during a pandemic which has had far-reaching effects across the global economy and society.

Cavestany has reassembled a roster of operational-risk experts to pervasively analyse, quantify and identify the potential economic and operative consequences of this type of impact scenario through a more granular and critical tool: operational risk capital modelling.

This book provides the experiences of its authors during the successful implementation in organisations of operational risk capital models, best practices and industry standards, and the integration of the capital results into day-to-day risk management. The authors use the challenges described in the chapters to define the required elements in the operational risk capital modelling framework. The new chapters include:

 

Exposure Based Approaches and Bayesian Networks

Rafael Cavestany, Daniel Rodriguez and Emilio Lopez Cano

Operational Risk Correlations

Rafael Cavestany

Backtesting, Stress Testing and Sensitivity Analysis

Rafael Cavestany and Daniel Rodriguez

Regulatory Approval Report

Rafael Cavestany and Emilio Lopez Cano

 

This book presents to the practitioner the methods and processes required to address all the operational risk challenges, including operational resilience, a firm might face and to help them make practical decisions for determining the most appropriate model for projecting their institution’s operational risk capital needs.

More Information
ISBN 9781782724223
Navision code MANY
Publication date 25/9/20
Size 155mm x 235mm
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Rafael Cavestany

Rafael Cavestany has over 20 years of experience in the financial services industry covering the banking and insurance sectors. He currently works as a CEO of The Analytics Boutique, a risk analytics software company that he founded. Previously, Rafael worked at True North Partners Group and SKITES as a director, and prior to that at Everis as the executive director of their risk management practice and at PwC as a senior manager. He has also worked on projects for a number of leading financial institutions in the US, Canada, the UK, Spain, Italy, Latin America, Asia and South Africa, and his experience is focused on consulting projects for the development of risk management analytics software solutions and the corresponding methodologies, workflows and data requirements, with special emphasis on economic capital and operational risk modelling. In operational risk modelling, Rafael has undertaken projects in insurance, banking, energy, oil and gas, and food industries, and led the development of the software solution used in the examples in this book. He received an MBA from the University of Michigan in 1997, a degree in economics from Universidad Autonoma de Madrid, and a PhD in economics from Universidad de Castilla-La Manchan in 2020.

Acknowledgements ix
List of Abbreviations xi
Glossary xv
About the Editor xxvii
About the Authors xxix

Introduction 1
Rafael Cavestany and Brenda Boultwood
1 Challenges of operational risk advanced capital models 11
Rafael Cavestany and Brenda Boultwood

PART I: CAPTURE AND DETERMINATION OF THE FOUR DATA ELEMENTS 31
2 Collection of operational loss data: ILD and ED 33
Brenda Boultwood
3 Scenario analysis framework and BEICFs integration 63
Rafael Cavestany, Brenda Boultwood, Danial Rodriguez

PART II: GENERAL FRAMEWORK FOR OPERATIONAL RISK CAPITAL MODELLING 105
4 Loss data modelling: ILD and ED 107
Rafael Cavestany and Daniel Rodríguez Perez
5 Distributions for modelling operational risk capital 201
Daniel Rodríguez
6 Scenario analysis modelling 217
Rafael Cavestany
OPERATIONAL RISK CAPITAL MODELS vi
7 Exposure-based approaches 231
Rafael Cavestany and Emilio Lopez Cano
8 BEICFs modelling and th eintegration into the capital model 241
Rafael Cavestany
9 Hybrid model construction: Integration of ILD, ED and SA 259
Rafael Cavestany, Daniel Rodríguez Perez and Fabrizio Ruggeri
10 Derivation of the joint distribution and capitalisation of operational risk 287
Rafael Cavestany and Daniel Rodríguez Perez
11 Backtesting, stress testing and sensitivity analysis 349
Rafael Cavestany, Daniel Rodriguez and Emilio Lopez Cano
12 Regulatory approval report 377
Rafael Cavestany
13 Evolving from a plain vanilla to a state-of-the-art model 399
Rafael Cavestany

PART III: USE TEST, INTEGRATING CAPITAL RESULTS INTO THE INSTITUTION'S DAY-TO-DAY RISK MANAGEMENT 407
14 Strategic and operationa business planning and monitoring 411
Rafael Cavestany, Lutz Baumgarten and Brenda Boultwood
15 Risk/reward evaluation of mitigation and control effectiveness 435
Rafael Cavestany and Javier Martinez Moguerza

APPENDICES 471
1 Credibility theory 473
Daniel Rodríguez
2 Mathematical optimisation methods required for operational risk modelling and other risk mitigation processes 483
Laureano F. Escudero
3 Business risk quantification 495
Lutz Baumgarten