The Advanced Measurement Approach to Operational Risk

by Ellen Davis

With the deadlines for Basel II rapidly approaching – your firm must implement the AMA by January 2008. To get your frameworks into place Risk Books present you with this state-of-the-art technical guide on how to model op risk with practical advice on how to set up an AMA programme that fully supports the modelling and quantification goals of your organisation. The book firmly focuses on practical solutions to modelling issues. Helps you set up a strong programme with quantification in mind, providing good quality information for modelling, in order to deliver the numbers you need for regulatory approval, and deliver value to your business lines. Crucially these complex topics are presented in an accessible manner, with plenty of thorough explanation to help you digest and implement the content. Five comprehensive sections succinctly guide you through the following key *The AMA Outlines a general approach to constructing an advanced measurement approach framework within your firm – the basis upon which any op risk model is built. It provides essential do’s and don’ts as well as step-by step guidance on how best to achieve the goals of your op risk programme. It covers such crucial areas as data selection, granularity, correlation, and diversification. *Modelling Gets you fluent in the fundamentals of operational risk modelling with discussion of general concepts, a study of Citigroup’s own approach as well as analysis of the main mathematical models regularly used to analyse loss data. *Modelling Shows you how models can be adjusted to overcome limitations in the underlying data. It includes practical guidance on loss data capture, the effect of data gaps on parameter estimates, expected and unexpected loss calculations and the use of extreme value theory to help mitigate some of the data problems associated with operational risk modelling. *Alternative modelling This section gives you a general framework for thinking about qualitative elements and their role in modelling - including scenario analysis, key risk indicators, and how to overcome the challenges in the modelling of less tangible risks, such as technology risk. *Comparative views of To help you gain a broader understanding of how your colleagues around the world are implementing their op risk solutions – the final section contains an overview of an op risk framework at a US bank, plus implementation studies from Spain and Germany. The German study unveils the results of a major industry survey, outlining “real world” practices in financial services firms, including the strengths and shortcomings of firms’ approaches to solving key op risk challenges.

350 pages, Hardcover

First published January 1, 2006