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Operational Risk Toward Basel III

September 14 2010

Operational Risk Toward Basel III  Operational Risk Toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation
Best Practices and Issues in Modeling, Management, and Regulation

Recent developments in the financial world have once again brought the issue of risk management to the forefront. Without a doubt, international banking reforms are now more important than ever, and understanding current compliance issues as well as the effects of future accords such as Basel III is essential.

While newly developed and optimized financial products are supposed to provide better protection against credit and market risk, the factors involved in the operational risk arena continue to grow in complexity. That's why editor and financial expert Greg N. Gregoriou has created Operational Risk toward Basel III. In it, he brings together experienced practitioners, consultants, and academics to analyze key concepts associated with this discipline.

Divided into four comprehensive sections—Operational Risk Measurement: Qualitative Approaches; Operational Risk Measurement: Quantitative Approaches; Operational Risk Management and Mitigation; and Issues in Operational Risk Regulation and the Fund Industry—this detailed guide not only contains contributed chapters that provide an abundant amount of information regarding operational risk, but it also walks you through a wide array of case studies and examples that will solidify your understanding of the issues discussed.

Topics covered, include:

  • Operation risk (OpR) management under the new Basel Capital Accord
  • Dealing with the intangible nature of banking services
  • OpR vs. capital requirements under new banking capital regulations
  • Integrating OpR into total Value-at-Risk (VaR)
  • OpR disclosure in financial services firms
  • Hedge fund operational risks
  • OpR in securities clearing and settlement systems

While operational risk has long been regarded as a mere part of "other" risks—outside the realm of credit and market risk—it has quickly made its way to the forefront of finance. With the implementation of the Basel II Accord throughout the developed world and Basel III on the horizon, many financial professionals, as well as those preparing to enter this field, must be familiar with a variety of issues related to operational risk modeling, management, and regulation. Operational Risk toward Basel III contains the information you need to achieve this goal.

Read Online: Operational Risk Toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation

Hardcover: 497 pages
Publisher: Wiley (March 3, 2009)
ISBN-10: 047039014X
ISBN-13: 978-0470390146

This book consists of chapters by contributors (well-known professors, practitioners, and consultants from large and well respected money management firms within this area) offering the latest research in the OpRisk area. The chapters highlight how operational risk helps firms survive and prosper by givingreaders the latest, cutting-edge techniques in OpRisk management.

Topics discussed include: Basel Accord II, getting ready for the New Basel III, Extreme Value Theory, the new capital requirements and regulations in the banking sector in relation to financial reporting (including developing concepts such as OpRisk Insurance which wasn't a part of the Basel II framework).

The book further discussed quantitative and qualitative aspects of OpRisk, as well as fraud and applications to the fund industry.

Download Excerpt: Operational Risk Toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation

PDF format, 122KB.

Modeling Operational Risk Based on Multiple Experts’ Opinions
While the Basel II accord has now gone live in most parts of the world, many discrepancies still remain on advanced modeling techniques for operational risk among large international banks.

The two major families of models include the loss distribution approaches (LDAs) that focus on observed past internal and external loss events and the scenario-based techniques that use subjective opinions from experts as the starting point to determine the regulatory capital charge to cover operational risk.

A major methodological challenge is the combination of both techniques so as to fulfill Basel II requirements. In this chapter we discuss and investigate the use of various alternatives to model expert opinion in a sound statistical way so as to allow for subsequent integration with loss distributions fitted on internal and/or external data. A numerical example supports the analysis and shows that solutions exist to merge information arising from both sources.

Greg N. Gregoriou, PhD, is Professor of Finance in the School of Business and Economics at the State University of New York at Plattsburgh. He has written over fifty articles on hedge funds and managed futures in various peer-reviewed publications.

In addition to a multitude of publications with a variety of publishers, Gregoriou is author of the following Wiley books: Stock Market Liquidity; International Corporate Governance After Sarbanes-Oxley; Commodity Trading Advisors; Hedge Funds: Insights in Performance Measurement, Risk Analysis, and Portfolio Allocation; and Evaluating Hedge Fund and CTA Performance.

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Last Updated ( September 14 2010 )
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