System and method for measuring and managing operational risk

Abstract

According to one aspect of the invention, there is provided a method of modeling operational risk comprising the steps of: defining one or more reporting hierarchies, wherein said reporting hierarchies are composed of operational units; associating operational risk data to one or more of said operational units, wherein said operational risk data includes data associated with a plurality of first loss events; and calibrating a plurality of loss processes and a plurality of loss process attributes using said plurality of first loss events, wherein a plurality of loss processes are generated for use in at least one of risk management, operations management, and financial management.

1 . A system for measuring and managing operational risk, comprising: 
 (a) a database, wherein operational risk data is stored therein, wherein said operational risk data includes data associated with a plurality of first loss events;    (b) a first calibration engine coupled to said database, wherein said calibration engine generates a plurality of loss processes, and estimates a plurality of loss process attributes;    (c) a second reporting hierarchy engine coupled to said database, wherein said reporting hierarchy engine associates each of said plurality of loss processes to one or more operational units;    (d) a third simulation engine connected to said calibration engine for performing simulation-based computations, wherein said third simulation engine forecasts a plurality of second loss events using said plurality of loss processes, wherein said second loss events are estimates of future loss events; and    (e) a fourth risk engine coupled to said second reporting hierarchy engine and said third simulation engine for computing at least one risk measure using said plurality of first or said second loss events, wherein said risk measure is a measure of operational risk.    
     
     
         2 . The system as claimed in  claim 1 , wherein said risk measure is internal operational risk capital.  
     
     
         3 . The system as claimed in  claim 1 , wherein said risk measure is regulatory operational risk capital.  
     
     
         4 . The system as claimed in  claim 1 , further comprising a report generator for representing said risk measures in a report for use in managing operational risk capital.  
     
     
         5 . A method of measuring and managing operational risk within a firm, comprising the steps of: 
 (a) defining a plurality of reporting hierarchies, wherein said reporting hierarchies are composed of operational units;    (b) associating operational risk data to one or more of said operational units, wherein said operational risk data includes data associated with a plurality of first loss events;    (c) defining a plurality of scenarios, wherein said plurality of scenarios include a plurality of loss process attributes;    (d) computing a plurality of second loss events using said plurality of loss processes and said plurality of loss process attributes;    (e) storing data associated with one or more of said plurality of second loss events in a storage medium; and    (f) aggregating said plurality of second loss events to produce at least one risk measure, wherein said risk measure is a measure of operational risk.    
     
     
         6 . The method as claimed in  claim 5 , wherein the data associated with said plurality of second loss events is stored in an MtF Cube.  
     
     
         7 . The method as claimed in  claim 5 , wherein said risk measure is internal operational risk capital.  
     
     
         8 . The method as claimed in  claim 5 , wherein said risk measure is regulatory operational risk capital.  
     
     
         9 . The method as claimed in  claim 5 , further comprising the steps of generating a report, wherein said report represents said risk measures for use in managing operational risk.  
     
     
         10 . A method of modeling operational risk comprising the steps of: 
 (a) defining one or more reporting hierarchies, wherein said reporting hierarchies are composed of operational units;    (b) associating operational risk data to one or more of said operational units, wherein said operational risk data includes data associated with a plurality of first loss events; and    (c) calibrating a plurality of loss processes and a plurality of loss process attributes using said plurality of first loss events, wherein a plurality of loss processes are generated for use in at least one of risk management, operations management, and financial management.    
     
     
         11 . The method as claimed in  claim 10 , wherein said plurality of loss processes are for use in determining loss distributions for one or more of said operational units.