Operational Risk: A Guide to Basel II Capital Requirements, Models, and Analysis

Table of contents

1. Title Page
2. Copyright Page
3. Dedication
4. Preface
5. About the Authors
6. CHAPTER 1 - Operational Risk Is Not Just “Other” Risks
   1. EFFECTS OF GLOBALIZATION AND DEREGULATION: INCREASED RISK EXPOSURES
   2. EXAMPLES OF HIGH-MAGNITUDE OPERATIONAL LOSSES
   3. OPERATIONAL LOSSES IN THE HEDGE FUND INDUSTRY
   4. SUMMARY OF KEY CONCEPTS
   5. REFERENCES
7. CHAPTER 2 - Operational Risk: Definition, Classification, and Its Place among Other Risks
   1. WHAT IS RISK?
   2. DEFINITION OF OPERATIONAL RISK
   3. OPERATIONAL RISK EXPOSURE INDICATORS
   4. CLASSIFICATION OF OPERATIONAL RISK
   5. TOPOLOGY OF FINANCIAL RISKS
   6. CAPITAL ALLOCATION FOR OPERATIONAL, MARKET, AND CREDIT RISKS
   7. IMPACT OF OPERATIONAL RISK ON THE MARKET VALUE OF BANK EQUITY
   8. EFFECTS OF MACROECONOMIC ENVIRONMENT ON OPERATIONAL RISK
   9. SUMMARY OF KEY CONCEPTS
   10. REFERENCES
8. CHAPTER 3 - Basel II Capital Accord
   1. THE BASEL COMMITTEE ON BANKING SUPERVISION
   2. THE BASEL CAPITAL ACCORD
   3. PILLAR I: MINIMUM CAPITAL REQUIREMENTS FOR OPERATIONAL RISK
   4. PILLAR II: CAPITAL ADEQUACY AND REGULATORY PRINCIPLES
   5. PILLAR III: MARKET DISCIPLINE AND PUBLIC DISCLOSURE
   6. OVERVIEW OF LOSS DATA COLLECTION EXERCISES
   7. THE ROLE OF INSURANCE
   8. COMPLIANCE WITH BASEL II IN PRACTICE
   9. IMPLEMENTING BASEL II: SOME GENERAL CONCERNS
   10. SUMMARY OF KEY CONCEPTS
   11. REFERENCES
9. CHAPTER 4 - Key Challenges in Modeling Operational Risk
   1. OPERATIONAL RISK MODELS
   2. SPECIFICS OF OPERATIONAL LOSS DATA
   3. SUMMARY OF KEY CONCEPTS
   4. REFERENCES
10. CHAPTER 5 - Frequency Distributions
    1. BINOMIAL DISTRIBUTION
    2. GEOMETRIC DISTRIBUTION
    3. POISSON DISTRIBUTION
    4. NEGATIVE BINOMIAL DISTRIBUTION
    5. NONHOMOGENEOUS POISSON PROCESS (COX PROCESS)
    6. ALTERNATIVE APPROACH: INTERARRIVAL TIMES DISTRIBUTION
    7. EMPIRICAL ANALYSIS WITH OPERATIONAL LOSS DATA
    8. SUMMARY OF KEY CONCEPTS
    9. APPENDIX: BASIC DESCRIPTIVE TECHNIQUES FOR DISCRETE RANDOM VARIABLES
    10. REFERENCES
11. CHAPTER 6 - Loss Distributions
    1. NONPARAMETRIC APPROACH: EMPIRICAL DISTRIBUTION FUNCTION
    2. PARAMETRIC APPROACH: CONTINUOUS LOSS DISTRIBUTIONS
    3. EXTENSION: MIXTURE LOSS DISTRIBUTIONS
    4. A NOTE ON THE TAIL BEHAVIOR
    5. EMPIRICAL EVIDENCE WITH OPERATIONAL LOSS DATA
    6. SUMMARY OF KEY CONCEPTS
    7. APPENDIX: BASIC DESCRIPTIVE TECHNIQUES FOR CONTINUOUS RANDOM VARIABLES
    8. REFERENCES
12. CHAPTER 7 - Alpha-Stable Distributions
    1. DEFINITION OF AN ALPHA-STABLE RANDOM VARIABLE
    2. USEFUL PROPERTIES OF AN ALPHA-STABLE RANDOM VARIABLE
    3. ESTIMATING PARAMETERS OF THE ALPHA-STABLE DISTRIBUTION
    4. USEFUL TRANSFORMATIONS OF ALPHA-STABLE RANDOM VARIABLES
    5. APPLICATIONS TO OPERATIONAL LOSS DATA
    6. SUMMARY OF KEY CONCEPTS
    7. APPENDIX: CHARACTERISTIC FUNCTIONS
    8. REFERENCES
13. CHAPTER 8 - Extreme Value Theory
    1. BLOCK MAXIMA MODEL
    2. PEAK OVER THRESHOLD MODEL
    3. ESTIMATING THE SHAPE PARAMETER
    4. ADVANTAGES AND LIMITATIONS OF EXTREME VALUE THEORY
    5. EMPIRICAL STUDIES WITH OPERATIONAL LOSS DATA
    6. SUMMARY OF KEY CONCEPTS
    7. REFERENCES
14. CHAPTER 9 - Truncated Distributions
    1. REPORTING BIAS PROBLEM
    2. TRUNCATED MODEL FOR OPERATIONAL RISK
    3. EMPIRICAL STUDIES WITH OPERATIONAL LOSS DATA
    4. SUMMARY OF KEY CONCEPTS
    5. REFERENCES
15. CHAPTER 10 - Testing for the Goodness of Fit
    1. VISUAL TESTS FOR THE GOODNESS OF FIT
    2. COMMON FORMAL TESTS FOR THE GOODNESS OF FIT
    3. EMPIRICAL STUDY WITH OPERATIONAL LOSS DATA
    4. SUMMARY OF KEY CONCEPTS
    5. APPENDIX: HYPOTHESIS TESTING
    6. REFERENCES
16. CHAPTER 11 - Value-at-Risk
    1. INTUITIVELY, WHAT IS VaR?
    2. COMPOUND OPERATIONAL LOSS MODELS AND DERIVATION OF OPERATIONAL VaR
    3. VaR SENSITIVITY ANALYSIS
    4. BACKTESTING VaR
    5. BENEFITS AND LIMITATIONS OF VaR AND ALTERNATIVE RISK MEASURES
    6. EMPIRICAL STUDIES WITH OPERATIONAL LOSS DATA
    7. SUMMARY OF KEY CONCEPTS
    8. REFERENCES
17. CHAPTER 12 - Robust Modeling
    1. OUTLIERS IN OPERATIONAL LOSS DATA
    2. SOME DANGERS OF USING THE CLASSICAL APPROACH
    3. OVERVIEW OF ROBUST STATISTICS METHODOLOGY
    4. APPLICATION OF ROBUST METHODS TO OPERATIONAL LOSS DATA
    5. SUMMARY OF KEY CONCEPTS
    6. REFERENCES
18. CHAPTER 13 - Modeling Dependence
    1. THREE TYPES OF DEPENDENCE IN OPERATIONAL RISK
    2. LINEAR CORRELATION
    3. ALTERNATIVE DEPENDENCE MEASURE: RANK CORRELATION
    4. COPULAS
    5. USING COPULAS TO AGGREGATE CREDIT, MARKET, AND OPERATIONAL RISKS
    6. EMPIRICAL STUDIES WITH OPERATIONAL LOSS DATA
    7. SUMMARY OF KEY CONCEPTS
    8. REFERENCES
19. Index