Michael Mainelli
Z/Yen Group Limited
Introduction
Wholesale financial institutions have tried a number of approaches for managing and modeling operational risk, with limited success. Z/Yen Group Limited, for example, has developed an approach called environmental consistency confidence (ECC) meaning, basically, if you can predict incidents and losses with some degree of confidence, then your modeling is useful. It is often said, “correlation doesn’t demonstrate causation.” That is true, but “correlation should cause questions.” The core of environmental consistency confidence is using modern statistical models to manage financial ...
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