Automated Advanced Operational Risk Model 

The OpRisk Lighthouse Model is an automated solution which provides methodology, structure and integrated parameters to model operational risk using the advanced measurement approach consistent with the Basel Committee on Banking Supervision guidelines.  The model has been validated by independent model validation firms for several subscribing banks.  We also provide operational risk model validation services to banks.

Advanced Measurement Approach (AMA) to Operational Risk Modeling

The use of the AMA requires the implementation of risk management processes and measurement components that are forward-looking.   Implementation of the AMA has a positive impact on reputation and perception by stakeholders.  More sophisticated and advanced risk management sends a clear message of a sound risk management culture to shareholders, clients, rating agencies and the market.  Additionally, the use of the AMA often results in capital savings under the Basel framework. 

The OpRisk Lighthouse Model includes integrated parameters based on external loss data.  When applied to your institution’s scenario analysis results and internal loss data, a capital model is produced which is compliant with all requirements of the Basel framework. 


Summary of Methodology

  • The OpRisk Lighthouse Model uses input from the company’s scenario analysis, internal loss data, and optional additional external loss data
  • These inputs calculate an internal frequency/severity and a scenario frequency/severity
  • The Panjer recursion algorithm is used to create both an internal loss distribution and a scenario loss distribution
  • Convolution of the internal and scenario loss distribution yields an aggregate operational loss distribution
  • From the aggregate distribution, VaR and CVaR values are calculated for any confidence level

 

 flowchart

  

Summary of Methodology

The OpRisk Lighthouse Model produces an aggregate operational loss distribution, which is critical to calculating capital requirements. 

The OpRisk Lighthouse Model produces the following output:

1)      Probability Density Functions (PDF) of the scenario & external data implied distribution

2)      PDFs of the internal loss distribution (ILD)

3)      PDFs of the aggregate operational loss distribution

4)      Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) at any confidence level.

5)      Summary statistics of the aggregate operation loss distribution

 

VaRsPDFs

The OpRisk Lighthouse Model is easy to use, validated by independent validation firms, and satisfies the Basel Committee’s Advanced Measurement Approach requirements for operational risk.  Please contact Risk Lighthouse for licensing information.


Licensing & Web Demo

The OpRisk Lighthouse Model is available for licensing, including technical support, for an affordable annual subscription fee.  A licensing quote is available upon request. 

 

For licensing information or a web demonstration, please contact Evan Leite at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

 

 

 

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