In this paper we look at the common industry practices regarding operational risk modelling and explore the problems with frequency-severity models. We also look at an alternative approach in the form of causal modelling and how this can overcome some of the issues encountered with more traditional modelling techniques. We also discuss development areas in the field of operational risk modelling for consideration.
Share this page
Operational risk modelling
The simplistic nature of the standard formula for operational risk under Solvency II can lead to excessive capital requirements, so we offer another approach.