Functional Correlation Approach to Operational Risk in Banking Organizations

Details Functional Correlation Approach to Operational Risk in Banking Organizations Functional Correlation Approach to Operational Risk in Banking Organizations

2002-04-17

arxiv.org/abs/cond-mat/0204368v1

Physics

Condensed Matter

Statistical Mechanics

12 pages, 7 figures, uses RevTeX 4.0, submitted to Phys. Rev. E

Scientific paper

10.1016/S0378-4371(02)01822-8

A Value-at-Risk based model is proposed to compute the adequate equity capital necessary to cover potential losses due to operational risks, such as human and system process failures, in banking organizations. Exploring the analogy to a lattice gas model from physics, correlations between sequential failures are modeled by as functionally defined, heterogeneous couplings between mutually supportive processes. In contrast to traditional risk models for market and credit risk, where correlations are described by the covariance of Gaussian processes, the dynamics of the model shows collective phenomena such as bursts and avalanches of process failures.

Affiliated with

Also associated with

No associations

Rating

Functional Correlation Approach to Operational Risk in Banking Organizations does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Functional Correlation Approach to Operational Risk in Banking Organizations, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Functional Correlation Approach to Operational Risk in Banking Organizations will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-304322