Operational Risk Management

Instructor by : Herry Achmad Buchory   OUTLINE MATERI Introduction to Operational Risk Management

• What is Operational Risk?
• Operational Risk Exposure Indicators
• Classification of Operational Risk
• Internal versus External Operational Losses
• Direct versus Indirect Operational Losses
• Expected versus Unexpected Operational Losses
• Operational Risk Type, Event Type, and Loss Type
• Operational Loss Severity and Frequency
• Capital Allocation for Operational, Market, and Credit Risks

Operational Risk in BASEL II

• The Basel Committee on Banking Supervision
• The Basel Capital Accord
• Pillar I: Minimum Capital Requirements for Operational Risk
  • Decomposition of Capital
  • Capital for Expected and Unexpected Losses
  • Three Approaches to Assess the Operational Risk Capital Charge
    • The Basic Indicator Approach
    • The Standardized Approach
    • The Advanced Measurement Approaches
• Ten Principles of BASEL II
• The Pillars’ Action points
• More in depth with AMA: measurement system, framework, supervisory standard, and criteria

Challenge in Modeling Operational Risk

• Operational Risk Models
• Models Based on Top-Down Approaches
  • Multifactor Equity Pricing Models
  • Income/Exp. -Based Models
  • Operating Leverage Models
  • Scenario Analysis and Stress Testing Models
  • Risk Indicator Models

• Models Based on Bottom-Up Approaches
  • Process-Based Models
  • Actuarial Models
  • Proprietary Models

• Specifics of Operational Loss Data
• Scarcity of Available Historical Data
• Data Arrival Process
• Loss Severity Process
• Dependence between Business Units

Measuring Operational Risk Using Advance Measurement Approach

• Developing and designing Key Risk Indicator (KRI)
  • Consideration of the use of a balanced scorecard
  • Practical case studies using real business scenarios
  • How to find key risk indicators were not working in practice?
    • Case Study developing KRIs
    • Practical case study reviewing an actual KRI database

• Frequency distribution of operational loss : using @RISK
  • Binomial distribution
  • Geometric Distribution
  • Poisson distribution
  • Negative Binomial Distribution
  • Empirical distribution with operational loss data analysis
  • Exercise case study

• Loss Severity Distribution : non-parametric and parametric distribution: using @RISK
  • Non-parametric approach
  • Parametric approach : common and mixture distribution
  • Empirical Evidence with operational loss data
  • Alpha Stable Distribution
  • Extreme Value Theory (EVT)
  • Truncated Distributions
  • Exercise case study

Modeling Aggregate Loss Distribution

• Aggregating frequency loss and severity loss using @RISK
• Calculating OpVAR in Monte Carlo Simulation using @RISK
• Coherent Risk Measures
• VAR Sensitivity Analysis
• Backtesting VAR
• Benefits and Limitations of VaR and Alternative Risk Measures
• Empirical Studies with operational loss data

TRAINING METHOD Presentation Discussion Case Study Evaluation FACILITY Training Kit Handout Certificate Lunch + 2 X Coffee Break Souvenir Pick Up Participant