Operational Risk Modelling and Management: 1st Edition (Paperback) book cover

Operational Risk Modelling and Management

1st Edition

By Claudio Franzetti

Chapman and Hall/CRC

413 pages | 96 B/W Illus.

Purchasing Options:$ = USD
Paperback: 9781138116511
pub: 2017-06-07
Hardback: 9781439844762
pub: 2010-10-15
eBook (VitalSource) : 9780429064043
pub: 2016-04-19
from $39.98

FREE Standard Shipping!


Taking into account the standards of the Basel Accord, Operational Risk Modelling and Management presents a simulation model for generating the loss distribution of operational risk. It also examines a multitude of management issues that must be considered when adjusting the quantitative results of a comprehensive model.

The book emphasizes techniques that can be understood and applied by practitioners. In the quantitative portions of the text, the author supplies key concepts and definitions without stating theorems or delving into mathematical proofs. He also offers references for readers looking for further background information. In addition, the book includes a Monte Carlo simulation of risk capital in the form of a run-through example of risk calculations based on data from a quantitative impact study. Since the computations are too complicated for a scripting language, a prototypical software program can be downloaded from www.garrulus.com

Helping you navigate the tricky world of risk calculation and management, this book presents two main building blocks for determining how much capital needs to be reserved for operational risk. It employs the loss distribution approach as a model for calculating the risk capital figure and explains risk mitigation through management and management’s actuations.


This book outlines a complete and detailed description of one specific approach to modeling operational risk in accordance with Basel 2. However, the approach could easily be applied in the wider financial services sector. The author also offers some prototypical software to take you through the book’s example. … This book would be most useful for new entrants into the risk management arena, particularly in banking but also in financial services generally. For those thinking about operational risk for the first time, it would give some useful background and theory. For the more experienced in the operational risk field, it would serve better as a reference document.

—Andrew Couper, Annals of Actuarial Science, Vol. 5, 2011

In this book, Claudio Franzetti deals with operational risks such as those recently brought into focus through the financial crisis (especially in the banking industry) … [He] handles the subject almost entirely without mathematical proofs and theorems and finds simple explanations for complicated relationships. In addition, the rich literature list stimulates further reading.

Absolut report, February 2011

Table of Contents

Introduction to Operational Risk

Why Regulate Banks?

Additional Supervision

The Basel Regulatory Effort

Risk and Capital

What Is Operational Risk?

Economic Capital for Operational Risk

Operational Risk under Basel 2

Role of Insurance

Regulation after the Crisis

The Problem Context

General Remarks

The Data Problem

The Dependency Problem

The Insurance Problem

The Mapping Problem

The Management Problem

Strategic Risks of a Bank

AMA Standards

The Knowledge Problem

Probability, Causality and Other Primitives

The Modelling Approach

Simulation and the Monte Carlo Method

General Model Structure

Data Requirements

Data Modelling and Distributions

Run-Through Example: Quantitative Impact Study Data

Correlation of Losses

Risk Measures and Allocation

Insurance Modelling and Mitigation

Mapping Events to Insurance Policies

Mapping Events to Lines of Business

Calculating the Economic Capital

Results of the Run-Through Example

Summary and Conclusion

Managing Operational Risk

Management and Organisation



Operational Risk Framework

Operational Risk Structure

Operational Risk Process

Business Environment and Internal Control Factors

Scenario Analysis

Optimising the Insurance Programme

Audit, Reporting and Disclosure of Operational Risk

Risk Management versus Internal Control

Summary and Conclusion





About the Author

Claudio Franzetti is the chief risk officer of Swiss Export Risk Insurance (SERV) in Zurich and president of Garrulus Enterprise Ltd. He has previously worked at Aon Resolution AG, Deutsche Bank, Swiss Re, and Iris AG.

About the Series

Chapman & Hall/CRC Finance Series

Learn more…

Subject Categories

BISAC Subject Codes/Headings:
MATHEMATICS / Probability & Statistics / General