The Quantification of Operational Risk

Posted: 8 Nov 2005

See all articles by Paolo Vanini

Paolo Vanini

University of Basel

Markus Leippold

University of Zurich; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Abstract

This paper develops a framework for the quantification of operational risk based on a network with functional dependencies that represent work flows for business activities. The functioning of each node depends on stochastic risk factors driven by inputs such as human resources, data and inputs from other nodes. Using analytical and numerical methods, we obtain answers concerning capital allocation, stability, risk figures, the effect of different network structures (called "topological diversification") and dynamic diversification. Interpreting the results shows that the usual intuition gained from market and credit risk does not apply to the quantification of operational risk.

Keywords: quantification of operational risk, functional dependencies, node, stochastic risk factors, analytical methocs, numerical methocs, capital allocation, stability, risk figures, network structured, topological diversification, dynamic diversification

Suggested Citation

Vanini, Paolo and Leippold, Markus, The Quantification of Operational Risk. Journal of Risk, Vol. 8, No. 1, Fall 2005, Available at SSRN: https://ssrn.com/abstract=839805

Paolo Vanini

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Markus Leippold (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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