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A pilot project for peer benchmarking of operational risk scenarios
Journal of Risk Management in Financial Institutions,
11
(4),
381-392
(2018)
Abstract
This paper describes a pilot project for peer benchmarking of operational risk scenarios. By using a common methodology of scenario design and quantification, this project offers banks a tool for mutual comparison of risk level and risk drivers. The intent is not to replace internal methods of scenario assessment, but to supplement them with a benchmarking tool. Eight US banks participated in the pilot project. The group used the eXposure, Occurrence and Impact (XOI) methodology, which combines Bayesian networks and Monte Carlo simulation to design and assess scenarios. Results and individual drivers have been compared between peers for each scenario. In the first section of this paper, we explain the need for scenario assessment. The second section describes the XOI method in detail. The third section presents the pilot experiment and lessons learned.
Keywords: operational risk scenarios; benchmarking; Bayesian networks; Monte Carlo simulation; XOI methodology; risk management
The full article is available to subscribers to the journal.
Author's Biography
Laurent Condamin is a managing partner at MSTAR and has a PhD in applied mathematics. He is an expert consultant for operational risk modelling and quantification, machine learning, data modelling and Bayesian networks. He is also a co-author of ‘Risk Quantification: Management, Diagnosis and Hedging’ (Wiley, 2006).
Clémentine Marie is an engineer with more than 10 years’ experience in risk management. She has worked for banks and utilities in France and in the USA on risk framework implementation, quantification and strategic projects. She now works for MSTAR as a risk quantification and modelling expert.
Patrick Naim is the founder and CEO of MSTAR. He has been advising banks, insurance and energy companies for over 20 years in North America, Continental Europe and the UK. He is also the co-author of ‘Risk Quantification: Management, Diagnosis and Hedging’ (Wiley, 2006), ‘Bayesian Networks’ (Eyrolles, 2007) and ‘Bayesian Networks: A Practical Guide to Applications’ (Wiley, 2008).
Citation
Condamin, Laurent, Marie, Clémentine and Naim, Patrick (2018, September 1). A pilot project for peer benchmarking of operational risk scenarios. In the Journal of Risk Management in Financial Institutions, Volume 11, Issue 4. https://doi.org/10.69554/ASPD8496.
© Henry Stewart
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Publications LLP