Operational Risk: Measurement and Modelling


In this groundbreaking working, Jack L. King, Ph.D. provides the basis for an in-depth understanding of operational risk by focusing on its measurement and modelling. Using both theoretical and practical material, he lays out a foundation theory that can be applied and refined for application in the financial sector and beyond.
Operational Risk: Measurement and Modelling is a comprehensive source for understanding the effects of risk inherent in all operations. This book:
* Provides a set of assumptions, definitions, and methodology for quantifying operational risk
* Uses comprehensive step-by-step descriptions based on real-world examples to demonstrate the application and reinforce key ideas..
* Introduces Delta-EVTTM(TM), a new technique that allows firms to deal with losses resulting from routine errors, control breakdowns, and rare events.
* Relies on causality as the key for identifying operational risk that can be controlled and provides a basis for management action.
* Explains clearly the relation between the risk assessment, process engineering, and statistical loss models.
* Includes and explains in detail the formulas and procedures for calculating many common risk measures and building causal models using Bayesian networks.
"Dr King introduces practical solutions to a subject that is in danger of being drowned in theory."
- Philip Martin, Managing Director, HSBC Operational Risk Consultancy
"Jack King draws together a number of theoretical approaches to present, in a comprehensive yet straightforward manner, a systematic framework that supports the measurement and modelling of operational risk. As such, this book should prove thought provoking and act as an invaluable reference for both practioners and students of the subject alike. A welcome addition to the debate."
- Tim Kent-Phillips, Executive Director, Operations, Lehman Brothers International Europe Ltd.
"Dr King's work shows clearly his first-hand experience in the financial sector and should enable practitioners to do a superb job of building an operational risk measurement system. The in-depth understanding you need to set things up from scratch is contained in this book."
- Dr Gabor Laszlo, vice President, Market Risk Management, J.P. Morgan Chase and Co
"I believe this book makes a very valuable contribution to the ongoing discussion about how operational risk shuld be addressed. Practitioners, regulators and academics will discover useful elements to enhance their conceptual understanding of operational risk, from a perspective of measurement, control and management, as well as how it is linked to the calculation of economic capital requirements."
- Dr Daniel Egloff, Arthur Andersen

DR. JACK L. KING is the managing director of Genoa (UK) Limited, a consulting and software company specialising in risk. He brings to the firm almost 30 years' experience in technology and its application to risk.
From August 1998 to November 2000 Dr King worked as Director, Operational Risk for Algorithmics, Incorporated. Before joining Algorithmics, Dr King was a Director in the New York Financial Consulting Practice of Price Waterhouse, with a concentration in market and credit risk. From 1992 - 1996, Dr King was a scientist with the United Nations' International Atomic Energy Agency in Vienna, Austria where he developed enhanced systems for the measurement and control of global nuclear risk.
Dr King's education includes a Ph.D. in Computer Science, MBA, MA Finance, BS Computer Science, and BS Electrical Engineering. He is a member of IEEE and ACM and is a frequent contributor to risk-related magazines and newsletters.



Introduction to Operational Risk.

Historical Losses.



A Measurement Framework for Operational Risk.

The Delta Methodology.

The EVT Methodology.


Delta-EVT(TM) Models for Operational Risk.

Causal Modelling.

Causal Models for Operational Risk.


Error Propagation.

Extreme Value Theory.

Bayesian Methods.