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

Preliminary space mission design under uncertainty

This paper proposes a way to model uncertainties and to introduce them explicitly in the design process of a preliminary space mission. Traditionally, a system margin approach is used in order to take them into account. In this paper, Evidence Theory is proposed to crystallise the inherent uncertainties. The design process is then formulated as an Optimisation Under Uncertainties (OUU). Three techniques are proposed to solve the OUU problem: (a) an evolutionary multi-objective approach, (b) a step technique consisting of maximising the belief for different levels of performance, and (c) a clustering method that firstly identifes feasible regions. The three methods are applied to the BepiColombo mission and their effectiveness at solving the OUU problem are compared