Loss Distribution Approach for Operational Risk Capital Modelling under Basel II: Combining Different Data Sources for Risk Estimation

The management of operational risk in the banking industry has undergone significant changes over the last decade due to substantial changes in operational risk environment. Globalization, deregulation, the use of complex financial products and changes in information technology have resulted in exposure to new risks very different from market and credit risks. In response, Basel Committee for banking Supervision has developed a regulatory framework, referred to as Basel II, that introduced operational risk category and corresponding capital requirements. Over the past five years, major banks in most parts of the world have received accreditation under the Basel II Advanced Measurement Approach (AMA) by adopting the loss distribution approach (LDA) despite there being a number of unresolved methodological challenges in its implementation. Different approaches and methods are still under hot debate. In this paper, we review methods proposed in the literature for combining different data sources (internal data, external data and scenario analysis) which is one of the regulatory requirement for AMA

The belief noisy-or model applied to network reliability analysis

One difficulty faced in knowledge engineering for Bayesian Network (BN) is the quan-tification step where the Conditional Probability Tables (CPTs) are determined. The number of parameters included in CPTs increases exponentially with the number of parent variables. The most common solution is the application of the so-called canonical gates. The Noisy-OR (NOR) gate, which takes advantage of the independence of causal interactions, provides a logarithmic reduction of the number of parameters required to specify a CPT. In this paper, an extension of NOR model based on the theory of belief functions, named Belief Noisy-OR (BNOR), is proposed. BNOR is capable of dealing with both aleatory and epistemic uncertainty of the network. Compared with NOR, more rich information which is of great value for making decisions can be got when the available knowledge is uncertain. Specially, when there is no epistemic uncertainty, BNOR degrades into NOR. Additionally, different structures of BNOR are presented in this paper in order to meet various needs of engineers. The application of BNOR model on the reliability evaluation problem of networked systems demonstrates its effectiveness

Minimization of DDoS false alarm rate in Network Security; Refining fusion through correlation

Intrusion Detection Systems are designed to monitor a network environment and generate alerts whenever abnormal activities are detected. However, the number of these alerts can be very large making their evaluation a difficult task for a security analyst. Alert management techniques reduce alert volume significantly and potentially improve detection performance of an Intrusion Detection System. This thesis work presents a framework to improve the effectiveness and efficiency of an Intrusion Detection System by significantly reducing the false positive alerts and increasing the ability to spot an actual intrusion for Distributed Denial of Service attacks. Proposed sensor fusion technique addresses the issues relating the optimality of decision-making through correlation in multiple sensors framework. The fusion process is based on combining belief through Dempster Shafer rule of combination along with associating belief with each type of alert and combining them by using Subjective Logic based on Jøsang theory. Moreover, the reliability factor for any Intrusion Detection System is also addressed accordingly in order to minimize the chance of false diagnose of the final network state. A considerable number of simulations are conducted in order to determine the optimal performance of the proposed prototype

Investigation of robust optimization and evidence theory with stochastic expansions for aerospace applications under mixed uncertainty

One of the primary objectives of this research is to develop a method to model and propagate mixed (aleatory and epistemic) uncertainty in aerospace simulations using DSTE. In order to avoid excessive computational cost associated with large scale applications and the evaluation of Dempster Shafer structures, stochastic expansions are implemented for efficient UQ. The mixed UQ with DSTE approach was demonstrated on an analytical example and high fidelity computational fluid dynamics (CFD) study of transonic flow over a RAE 2822 airfoil. Another objective is to devise a DSTE based performance assessment framework through the use of quantification of margins and uncertainties. Efficient uncertainty propagation in system design performance metrics and performance boundaries is achieved through the use of stochastic expansions. The technique is demonstrated on: (1) a model problem with non-linear analytical functions representing the outputs and performance boundaries of two coupled systems and (2) a multi-disciplinary analysis of a supersonic civil transport. Finally, the stochastic expansions are applied to aerodynamic shape optimization under uncertainty. A robust optimization algorithm is presented for computationally efficient airfoil design under mixed uncertainty using a multi-fidelity approach. This algorithm exploits stochastic expansions to create surrogate models utilized in the optimization process. To reduce the computational cost, output space mapping technique is implemented to replace the high-fidelity CFD model by a suitably corrected low-fidelity one. The proposed algorithm is demonstrated on the robust optimization of NACA 4-digit airfoils under mixed uncertainties in transonic flow. --Abstract, page iii