Premium
Quantitative measures of operational risk: an application to funds management
Author(s) -
Brown Stephen J.
Publication year - 2012
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2012.00506.x
Subject(s) - operational risk , risk management , business , risk analysis (engineering) , context (archaeology) , asset (computer security) , operational risk management , due diligence , basel ii , factor analysis of information risk , it risk management , actuarial science , risk management information systems , computer science , finance , information system , economics , computer security , engineering , management information systems , profit (economics) , paleontology , electrical engineering , capital requirement , biology , microeconomics
Basel II defines operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people or systems or from external events. In the past decade, there have appeared a number of quantitative approaches to measuring this risk, approaches that abstract from market risk and reputational risk. The challenge is to develop operational risk measures in an asset management context where there is only limited information available about the incidence and severity of operational loss events. We survey different approaches to this problem and argue that managing this risk through operational due diligence is a source of alpha in this funds management context.