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Evaluation of backtesting on risk models based on data envelopment analysis Journal of Operational Risk (IF 0.645) Pub Date : 2022-01-01 Grigorios Kontaxis,Ioannis Tsolas
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Technology risk management in fintech: underlying mechanisms and challenges Journal of Operational Risk (IF 0.645) Pub Date : 2022-01-01 Xiaohui Chen,Hongwei Zhang,Lei Teng
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Modeling multivariate operational losses via copula-based distributions with g-and-h marginals Journal of Operational Risk (IF 0.645) Pub Date : 2022-01-01 Marco Bee,Julien Hambuckers
We propose a family of copula-based multivariate distributions with g-and- h marginals. After studying the properties of the distribution, we develop a two-step estimation strategy and analyze via simulation the sampling distribution of the estimators. The methodology is used for the analysis of a 7-dimensional dataset containing 40,871 operational losses. The empirical evidence suggests that a distribution
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Preventing the unpleasant: fraudulent financial statement detection using financial ratios Journal of Operational Risk (IF 0.645) Pub Date : 2022-01-01 Michail Pazarskis,Grigorios Lazos,Andreas Koutoupis,George Drogalas
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Revisiting the linkage between internal audit function characteristics and internal control quality Journal of Operational Risk (IF 0.645) Pub Date : 2022-01-01 Iakovos Michailidis,Kyriaki Alexandridou,Michail Nerantzidis,George Drogalas
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Critical variables in the implementation of a risk-based internal audit: a theoretical and empirical investigation of Greek companies Journal of Operational Risk (IF 0.645) Pub Date : 2021-02-01 Petros Lois,George Drogalas,Konstantinos Petridis,Karyofylis Doulgeridis
The role of an internal audit is of indisputable importance for every business. The emergence of many risks and the uncovering of financial scandals in recent years has led to increase of adoption of a risk-based internal audit (RBIA) by firms. This paper investigates the critical variables for the implementation of RBIA in Greek companies and examines the relationship between the above variables and
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Fighting Covid-19 in countries and operational risk in banks: similarities in risk management processes Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Thomas Kaiser
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Risk disclosures in annual reports: the role of nonfinancial companies listed on the Athens stock exchange Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Fragiskos Gonidakis,Andreas Koutoupis,Panagiotis Kyriakogkonas,Grigorios Lazos
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Key impact deep dive (KIDD) Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Philip Umande
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On modeling contagion in the formation of operational risk loss Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Xiang Gao,Zhan Wang
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An approach to simultaneously assess operational risk and maturity levels in information technology management Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Hossein Moinzad,Mohammad Tarokh,Mohammad Taghavifard
The development of information technology (IT) has had a considerable effect on organizational management and success. Due to the widespread use of IT, the risk of error increases, which can significantly affect organizations. In order to reduce the impact of these errors, organizational maturity and risk should be calculated. The aim of this paper is to investigate the operational risk and maturity
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Regulatory arbitrage in the use of insurance in the new standardized approach for operational risk capital Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Marco Migueis
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Enterprise risk management and firm performance: evidence from Malaysian nonfinancial firms Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Aidil Shahrin,Abdul Ibrahim
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The role of management accounting practices in operational risk management: the case of Palestinian commercial banks Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Hind Muhtaseb,Derar Eleyan
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Nonhomogeneous bivariate compound Poisson process with short-term periodicity Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Ali Sakhaei,Parviz Nasiri
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The economic cost of a fat finger mistake: a comparative case study from Samsung Securities’s ghost stock blunder Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Yongkil Ahn
This paper quantifies the economic cost of Samsung Securities’s ghost stock blunder using the synthetic control method. As the financial world becomes more computer based, sudden price fluctuations caused by unintended human input errors appear to be happening more frequently. Samsung Securities, the Samsung conglomerate’s stock trading arm, mistakenly distributed shares worth over US$100 billion to
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Bank supervision: lessons from the post-2008 banking crisis Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Jeremy Quick
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The spillover effect of the Bangladesh Bank cyber heist on banks’ cyber risk disclosures in Bangladesh Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Mohammed Mazumder,Abdus Sobhan
Bangladesh Bank (BB), the central bank of Bangladesh, experienced a highly organized cyber heist in February 2016 that seriously impaired the legitimacy of the cyber security systems of the country’s overall banking sector. This study examines the spillover effect of that cyber heist on the cyber risk disclosures of the banking sector in Bangladesh. Building on institutional theory, we propose that
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Extreme value theory for operational risk in insurance: a case study Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Michal Vyskočil,Jiří Koudelka
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Ex-intrusion corporate cyber risk: evidence from internet protocol networks Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Bill Francis,Wenyao Hu,Thomas Shohfi
Previous event studies of corporate cyber-risk have been limited to successful attacks on public firms but are biased samples constructed based on the economic magnitude of equity losses. To address this selection bias, we construct a larger and more representative sample of cyber intrusions only to find diminished negative equity (and insignificant corporate bond) market reactions compared to these
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Risk governance, market competition and operational risk disclosure quality: a study of the ASEAN-5 banking sector Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Etikah Karyani,Oluwaseun Kolade,Setio Dewo
This paper investigates the impact of risk governance and market competition on banks’ operational risk disclosure (ORD) quality (total and voluntary) in the Association of Southeast Asian Nations (ASEAN-5) banking sector. Using 285 firm-year observations encompassing the period 2010–14 for risk governance indexes, we investigate the moderating effects of market competition, relative to total risk
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Measurement of operational risk regulatory capital in the banking sector: developed countries versus emerging markets Journal of Operational Risk (IF 0.645) Pub Date : 2021-01-01 Medhat Hassanein,Mohammed Bouaddi,Talha Karim
This paper addresses operational risk as a fundamental risk type faced by banks in emerging and developed economies. We explore several models to specify the marginal and joint distributions of the types of operational losses that reflect loss frequencies and severity distribution(s), using international data published by a group of banks from developed and emerging economies. Our results reveal that
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Does the source of information influence depositors’ withdrawal intentions? Journal of Operational Risk (IF 0.645) Pub Date : 2020-09-01 Sune Ferreira,Zandri Dickason-Koekemoer
Evolving globalization has made South African banks more efficient and more diverse, giving them the chance to capture new opportunities. However, as banks extend their global reach and grasp these new opportunities, more risk is attached. Advances in technology and the radical spur of social media have changed the manner and speed with which information flows. Depositors base their perceptions (subjective
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Quantification of regulatory capital for management of operational risk in banks Journal of Operational Risk (IF 0.645) Pub Date : 2020-09-01 Naveen Kumar,Prosun Chatterjee
Operational risk is inherent in all banking products, activities, processes and systems. India’s banking sector has experienced a paradigm shift due to globalization and deregulation, which has led to the wider use of technology in product distribution channels and banks’ service delivery mechanisms. As a result, banks have become exposed to various types of operational risks, and the impact on the
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Ten laws of operational risk Journal of Operational Risk (IF 0.645) Pub Date : 2020-09-01 Michael Grimwade
Understanding operational risk is fundamental to its effective management. This paper sets out ten laws that govern the behavior of operational risk relating to the occurrence and detection/duration of events; the rapidity with which firms suffer losses; the lags in crystallization of losses; and internal and external drivers of concentration. The paper also considers the transference and conservation
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What is essential is invisible to the eye: prioritizing near misses to prevent future disasters Journal of Operational Risk (IF 0.645) Pub Date : 2020-06-01 Andrea Giacchero,Jacopo Moretti
A near miss is a negative and anomalous event that causes an accident without damage to people, corporates or environmental assets due to fortunate and/or random circumstances. A series of these events can be the precursor to a harmful incident with serious consequences because of inadequacies in internal processes. The management of a company should mitigate such inadequacies promptly to avoid future
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What do risk disclosures reveal about banking operational risk processes? Content analysis of banks’ risk disclosures in the Visegrad Four countries Journal of Operational Risk (IF 0.645) Pub Date : 2020-03-01 Gabriella Lamanda,Zsuzsanna Tamasne Vonek
This paper analyzes the operational risk disclosure practices of twenty-six large banks in the Visegrád group of countries (Czech Republic, Hungary, Poland and Slovakia) in the period 2008–16. Within a content analysis framework, we examine the content and the quality of operational risk reporting, relying on annual reports and Pillar 3 disclosure reports. Both descriptive statistics and multiple regression
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Risk capital reserve and measurement precision in modeling heavy-tailed single operational losses Journal of Operational Risk (IF 0.645) Pub Date : 2020-03-01 Jianming Mo,Xiang Gao
Heavy and long tails of loss distributions, an extremely high confidence level and parameter-estimation-based measurement techniques can lead to measurement errors in the calculation of capital reserve for external risks faced by financial institutions. However, studies on the connectedness between the capital reserve and the measurement uncertainty are surprisingly sparse. Our paper attempts to simultaneously
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Difference between the determinants of operational risk reporting in Islamic and conventional banks: evidence from Saudi Arabia Journal of Operational Risk (IF 0.645) Pub Date : 2020-03-01 Wael Hemrit
In this study, we investigate the operational risk reporting practices of Islamic banking institutions (IBIs) and conventional banks (CBs) in Saudi Arabia. Moreover, we explore the joint effect of banking characteristics, corporate governance and credit rating on the informational content of operational risk disclosure (OpRiskDISC). We use content analysis to collect OpRiskDISC data from annual reports
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The strange case of the Jet Airways bankruptcy: a financial structure analysis Journal of Operational Risk (IF 0.645) Pub Date : 2020-01-01 Matteo Rossi,Giuseppe Festa,Ashutosh Kolte,Riad Shams
The global aviation industry has changed very rapidly in recent years, mostly due to the evolution of both technology and commercial models. These changes have also impacted the sector in India, forcing Indian airline companies to face new and unpredictable challenges, not always successfully. The bankruptcy of Jet Airways is a relevant but still “unsolved” example in this respect. We investigate the
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Evaluating cyclic risk propagation through an organization Journal of Operational Risk (IF 0.645) Pub Date : 2020-01-01 Mark Gallagher,Daniel Fenn,Shane Hall
Many large organizations have risk that propagates because of the dependencies between their various major organizational components. This paper addresses when cycles of dependencies exist in an organization or system of systems. In a 2016 article, Gallagher, MacKenzie, Blum and Boerman proposed determining component risk assessment by evaluating against future plans with respect to performance, cost
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Strategic and technology risks: the case of Co-operative Bank Journal of Operational Risk (IF 0.645) Pub Date : 2020-01-01 Patrick McConnell
Growth by acquisition strategies is risky, first, because often the acquiring firm is uncertain about exactly what is being acquired, and second, because justifying the costs of acquisition is dependent on how well the firms can be integrated to achieve the necessary savings and/or increased market opportunities. In addition to integrating staff and processes, a key integration that must also take
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An emergent taxonomy for operational risk: capturing the wisdom of crowds Journal of Operational Risk (IF 0.645) Pub Date : 2020-01-01 Luke Carrivick,Steve Bishop,Tom Ivell,Valerie Wong,Ramy Farha
There has been a substantial change in the operational risks faced by financial services firms over the last fifteen years. Risks such as conduct, cyber and third party have risen in importance and now dominate boardroom agendas. How organizations think about this expanding portfolio of threats and manage them in a consistent way is underpinned by their risk taxonomy. This changing risk profile, combined
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Cyber risk management: an actuarial point of view Journal of Operational Risk (IF 0.645) Pub Date : 2019-12-01 Albina Orlando
In recent decades, companies worldwide have faced a new kind of risk, namely cyber risk, that has emerged as one of the top challenges in risk management. Insurance has only recently been applied to the cyber world, and it is increasingly becoming part of the risk management process, posing many challenges to actuaries. One of the main issues is the lack of data, particularly financial data. This paper
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Estimation of value-at-risk for conduct risk losses using pseudo-marginal Markov chain Monte Carlo Journal of Operational Risk (IF 0.645) Pub Date : 2019-12-01 Peter Mitic
We propose a model for conduct risk losses, in which conduct risk losses are characterized by having a small number of extremely large losses (perhaps only one) with more numerous smaller losses. It is assumed that the largest loss is actually a provision from which payments to customers are made periodically as required. We use the pseudo-marginal (PM) Markov chain Monte Carlo method to decompose
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Applying existing scenario techniques to the quantification of emerging operational risks Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Michael Grimwade
It is emerging operational risks that are habitually cited as keeping executives awake at night. These risks are dynamic and inspire the fear of the unknown, and it is precisely these characteristics that make their quantification so challenging. While there are no perfect solutions, this paper sets out techniques for: • identifying systematically emerging threats, their timescales, and interrelation-
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Introducing a novel system-of-systems axiomatic risk management technique for production systems Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Asif Mahmood
We present a novel approach for managing the risks of a large complex system of systems. The methodology of system-of-systems axiomatic risk management (SoSARM) put forward here is an axiomatic-risk-based decomposition for resolving hierarchical coupled risks. The first part of the paper develops a new methodological concept to understand and quantify the relationships between higher-level and lower-level
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The use of business intelligence and predictive analytics in detecting and managing occupational fraud in Nigerian banks Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Chioma N. Nwafor,Obumneme Z. Nwafor,Chris Onalo
The problem of occupational fraud is one of the most wide-reaching operational risk event types in the Nigerian banking system. This event type spans many departments, roles, processes and systems and causes significant financial and reputational damage to banks. As a result, fraud presents banks with a real challenge in terms of knowing where to start. One of the main aims of this paper is to use
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Estimation of losses due to cyber risk for financial institutions Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Antoine Bouveret
Cyber risk has emerged as a key threat to financial institutions. The objective of this paper is to analyze cyber risk from an operational risk perspective and to measure cyber risk empirically. Using a novel data set on cyber attacks, we analyze the main characteristics of cyber attacks and identify patterns using correspondence analysis. We apply the loss distribution approach to the data set and
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An alternative approach for the operational risk assessment of a new product Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Andrea Giacchero, Jacopo Moretti, Francesco Cesarone, Fabio Tardella
The risk assessment of a new product is one of the most critical activities performed by the operational risk management of a company operating in the financial sector. There are few reference points for the operational risk management to assess the riskiness of a new product, due both to the lack of operational loss data and to the inexperience of the process owners in handling the new operation.
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Measuring expected shortfall under semi-parametric expected shortfall approaches: a case study of selected Southern European/Mediterranean countries Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Nikola Radivojevic, Borislav Bojic, Marija Lakicevic
We investigate the applicability of semi-parametric approaches for estimating expected shortfall. More precisely, we examine the applicability of several models based on the historical simulation (HS) approach: one based on untransformed historical data, and others based on transformed historical data. Our research shows that the HS models based on certain transformed historical data can reliably be
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On the selection of loss severity distributions to model operational risk Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Daniel Hadley, Harry Joe, Natalia Nolde
The accurate modeling of operational risk is important for banks and the finance industry as a whole to prepare for potentially catastrophic losses. One modeling approach is the loss distribution approach, which requires a bank to group operational losses into risk categories and select a loss frequency and severity distribution for each category. The annual operational loss distribution is estimated
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The operational risk disclosure practices of banks: evidence from India and Romania Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Muneesh Kumar, Harshmeeta Kaur Soni, Mihaela Mocanu
The disclosure of information by banks is beneficial to several categories of the public as well as to the stability of the financial system. Operational risk disclosures are particularly important, since operational losses may impact both the financial condition and the reputation of banks. This paper compares the levels of operational risk disclosure in the banking industries of India and Romania
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Quantification of operational risk: statistical insights on coherent risk measures Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Dany Ng Cheong Vee, Preethee Gonpot, T. V. Ramanathan
Operational risk is becoming a major part of corporate governance in companies, especially in the financial services industry. In this paper, we review some of the existing methods used to quantify operational risks in the banking and insurance industries. These methods use recent statistical concepts such as extreme value theory and copula modeling. We explore the possibility of using a coherent risk
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An investigation of cyber loss data and its links to operational risk Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Ruben D. Cohen, Jonathan Humphries, Sabrina Veau, Roger Francis
Cyber risk is one of the most challenging areas of risk, not only because it is relatively nascent but also because it remains an elusive moving target due to an ever-evolving threat landscape. A lack of structured data and the systemic implications of multifaceted impacts of overlapping risk frameworks are additional factors that make this risk difficult to quantify. As a starting point for overcoming
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The impact of enterprise risk management on the performance of companies in transition countries: Serbia case study Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Marija Panic, Milica Velickovic, Danijela Voza, Zivan Zivkovic, Zuzana Virglerova
The market position of a company influences its performance. In hazard conditions, all the factors that determine a company’s market position and business are exposed to risk. An effective program of enterprise risk management (ERM) decreases the level of risk and improves company performance. ERM is a process that identifies and evaluates all potential losses that can occur in business organizations
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Maximum likelihood estimation error and operational value-at-risk stability Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Paul Larsen
The challenge of using small sample sizes for operational risk capital models fitted via maximum likelihood estimation is well recognized, yet the literature generally provides warning examples rather than a systematic approach. We present a general framework for analyzing maximum likelihood estimation error on operational value-at-risk as a function of sample size for five severity distributions commonly
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Sample dependence of risk premiums Journal of Operational Risk (IF 0.645) Pub Date : 2019-01-01 Erika Gomes-Gonçalves, Henryk Gzyl, Silvia Mayoral
An important problem in the banking and insurance industries is that of pricing risk. The two come together when a bank buys insurance to decrease the impact of potential operational risk losses. The price of such insurance hinges on the computation of risk premiums, which involves the computation of expected values with respect to the loss distribution. When the empirical data set is not large and
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Forward-looking and incentive-compatible operational risk capital framework Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Marco Migueis
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Global perspectives on operational risk management and practice: a survey by the Institute of Operational Risk (IOR) and the Center for Financial Professionals (CeFPro) Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Gareth W. Peters,George Clark,John Thirlwell,Manoj Kulwal
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Bridging networks, systems and controls frameworks for cybersecurity curriculums and standards development Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Yogesh Malhotra
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An operational risk capital model based on the loss distribution approach Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Ruben D. Cohen
In this paper, we construct a capital model for operational risk based on the observation that operational losses can, under a certain dimensional transformation, converge into a single, universal distribution, as previously established by Cohen in a 2016 paper. Derivation of the model is accomplished by directly applying the loss distribution approach to the transformed data, yielding a calibratable
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A review of the state of the art in quantifying operational risk Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Sonia Benito,Carmen Lopez-Martin
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Risk monitoring through better knowledge-based risk processes Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Amine Nehari Talet,Louay Karadsheh,Mufleh Amin AL Jarrah,Samer Alhawari
Knowledge-based risk processes are becoming a key factor in the effective monitoring of risk. Therefore, knowledge-based risk processes and knowledge-based risk repositories are extensively used in information technology (IT) projects to successfully support risk monitoring. The aim of this paper is to propose a model that describes the integration of knowledge-based risks (via the processes of knowledge-based
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Modeling operational risk depending on covariates: an empirical investigation Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Paul Embrechts, Kamil Mizgier, Xian Chen
The importance of operational risk management in financial and commodity markets has increased significantly over the last few decades. This paper demonstrates the application of a nonhomogeneous Poisson model and dynamic extreme value theory (EVT) incorporating covariates on estimating frequency, severity and risk measures for operational risk. Compared with a classical EVT approach, the dynamic EVT
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Predictive fraud analytics: B-tests Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Sergey Afanasiev, Anastasiya Smirnova
In the banking sector, machine-learning methods are applied in a wide variety of business areas: assessing a client’s risk profile (application and behavior scoring), forming targeted sales (x-sell, up-sell), choosing collection strategies (collection scoring), etc. The bank anti-fraud division is no exception, where with the help of machine-learning methods effective anti-fraud tools are developed
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Tail dependence in small samples: from theory to practice Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Sophie Lavaud
Tail dependence is a probability-based concept meant to address the challenge of detecting and modeling the extreme comovements that can be observed in many real-life situations. Huge financial losses for a bank, floods and epidemics are obvious instances of such extreme comovements. Like extreme value theory in the univariate case, tail dependence depends on asymptotic theory. Therefore, the statistical
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Distortion risk measures for nonnegative multivariate risks Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Montserrat Guillen, Jose Maria Sarabia, Jaume Belles-Sampera, Faustino Prieto
The authors acknowledge the support received from the Spanish Ministry of Science/ FEDER grants ECO2016-76203-C2-1-P and ECO2016-76203-C2-2-P, and J. M. Sarabia and F. Prieto acknowledge the support received from the Santander Financial Institute (SANFI) of the Fundacion UCEIF through the University of Cantabria, funded by sponsorship from Banco Santander.
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Shapley allocation, diversification and services in operational risk Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Peter Mitic, Bertrand K. Hassani
A method of allocating Operational Risk regulatory capital using the Shapley method for a large number of business units, supported by a service, is proposed. A closed-form formula for Shapley allocations is developed under two principal assumptions. First, if business units form coalitions, the value added to the coalition by a new entrant depends on a constant proportionality factor. This factor
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Operational risk measurement beyond the loss distribution approach: an exposure-based methodology Journal of Operational Risk (IF 0.645) Pub Date : 2018-01-01 Michael Einemann, Joerg Fritscher, Michael Kalkbrener
The loss distribution approach (LDA) has evolved as the industry standard for operational risk models despite a number of known weaknesses. In particular, LDA’s traditional focus on historical loss data often neglects expert knowledge that is available for operational risk types of a more predictable nature. In this paper, we present an alternative quantification technique, so-called exposure-based