Corporate Risk Management by Georges Dionne

Author:Georges Dionne [Dionne, Georges]
Language: eng
Format: epub
ISBN: 9781119583158
Published: 2019-04-30T00:00:00+00:00

NOTES

1 To calculate the probabilities using a generator, see Dionne et al. (2010).

2 See CreditMetrics (2007) for more details.

3 See Saunders and Allen (2002) for a more detailed discussion.

4 For an application to Canadian firms, see Alinasab (2010).

CHAPTER 14

Quantification of Banks' Operational Risk

This chapter covers operational risk, which is very different from the other risks previously discussed.1 Operational risk is more similar to a pure risk rather than a financial risk intended to obtain a future return, such as market risk or credit risk. Although operational risk is also insurable, very few forms of insurance coverage for several components of operational risk exist on the market. Financial institutions must therefore opt for self-protection (prevention) and self-insurance to limit this risk. One form of self-insurance is to establish a capital reserve. This chapter will present models for calculating optimal capital for operational risk to satisfy regulatory requirements.

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