Advanced Operational Risk Workshop

• Operational Risks Events and their Loss Impacts
• Collecting, Validating and Using Loss Data
• Estimating the Loss Distribution Function
• Scenario Analysis and Stress Testing
• Regulatory and Economic Capital Assessment and Allocation
• Verifying, Validating and Back Testing of OP Risk Models
• Risk Reporting, Management and Control

The objective of this workshop is to give you a good, “hands-on” understanding of methods and tools for measuring and managing of operational risk.

We will start with a brief review of the different types of operational risk events and their loss impacts.

We then explain how operational risk can be modelled using internal and external loss data, self-assessments and other techniques. We discuss the problem in collecting and validating relevant (and sufficient) data for reliable estimates of a loss distribution. We give examples of how data for loss frequency by business line and event type can be obtained from external loss databases such as ORX and we demonstrate how this data can be combined with internal data and qualitative assessments to construct a loss distribution and to calculate expected and unexpected losses. We explain and demonstrate how the loss distribution and its associated parameters can be used to calculate regulatory and economic capital.

Further, we explain, discuss and demonstrate how to verify and validate the OP risk framework and risk models. Methods include back testing and statistical testing. Specifically, we explain why the difficulties in conducting back testing owing to data availability and we show how it may be possible to secure relatively robustness of operational risk measurement with statistical testing.

We also explain and demonstrate how to deal with high severity/low frequency events and we discuss how correlations between different OP risk events can be incorporated, and how scenario analysis may be used to examine sensitivity of the estimation to changes in the assumptions in order to check the robustness of models in stress situations.

Finally, we discuss practical issues related to management, control and reporting of OP risk.

 

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Operational Risks Events and their Loss Impacts

• Overview of Operational Risk
• Operational Risks Events and Measurement Methods
• Regulatory Treatment of Operational Risk

Workshop: Collecting, Validating and Using Loss Data

• Internal and External Data Sources
• Problems in Collecting Internal Data
• The Basel Loss Data Collection Exercise
• How to deal with operational loss data related to credit or market risk
• Loss Data Categorization
• Loss Attributes
• Business Metrics and KRIs

12.00 - 13.00 Lunch

13.00 - 16.30 Workshop: Quantifying Operational Risk

• The Modelling Process
• Measures of Risk
• Models for the Size of Losses
• Models for the Number of Losses
• Aggregate Loss Models
• Extreme Value Theory
• Multivariate Models
• Calibrating Models for Operational Risk
• Scenario Generations Using Multifactor Models
• Key Control Indicators and the Volatility of Losses
• Calculating Regulatory and Economic Capital for Operational Risk

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Workshop: Verifying and Validating an OP Risk Framework

• Purposes of Verification and Validation
• Verification of Internal Loss Data
• Testing Samples of Risk Control Self-Assessments
• Model Validation
  • Identification
  • Review process
  • Approval and monitoring
  • Input data, assumptions, logic and theory, computer code, output
  • Back-testing and out-of-sample testing
• OP Risk Framework Validation
  • Logic check for overall OR framework and framework elements

12.00 - 13.00 Lunch

13.00 - 16.00 Workshop: Operational Risk Reporting, Management and Control

• OR Risk Governance
• Responsibilities
• Senior Management
• Internal Audit
• Operational Risk Reporting
• Operational Risk Control
• Operational Cost Control
• Active Operational Risk Management – Risk Capital, Capital Allocation and Performance Measurement

Evaluation and Termination of the Workshop