The risk assessment of a new product is one of the most critical activities performed by the Operational Risk Management (ORM) of a company operating in the financial sector. For a new product there are few reference points to assess its riskiness for ORM, due both to the lack of operational loss data and to the inexperience of the process owners in handling the new operation. To overcome these two limitations, we propose an operational risk methodological framework to identify and prioritize the most dangerous operational risk events with respect to the introduction of a new product in a financial institution. The methodology provides the use of a checklist based on risk factors (causes) to assess the operational riskiness of a new product before its launch. Then, after the launch and with particular reference to the management of a new product, we use the Analytic Hierarchy Process (AHP) approach to prioritize operational risk events, and the 80/20 rule to allocate them in appropriate risk rating classes. As a further element with respect to the aforementioned framework, we then develop an optimization model to minimize the total cost of investments required to cover all the important risks. Furthermore, we to study the relationship between the total cost of investments and the exposure coverage by means of another optimization model.

Giacchero, A., Moretti, J., Cesarone, F., & Tardella, F. (2018). Operational risk assessment of a new product using AHP. In XIX Workshop on Quantitative Finance (pp.24-24).

Operational risk assessment of a new product using AHP

Moretti, Jacopo
;
Francesco Cesarone;
2018

Abstract

The risk assessment of a new product is one of the most critical activities performed by the Operational Risk Management (ORM) of a company operating in the financial sector. For a new product there are few reference points to assess its riskiness for ORM, due both to the lack of operational loss data and to the inexperience of the process owners in handling the new operation. To overcome these two limitations, we propose an operational risk methodological framework to identify and prioritize the most dangerous operational risk events with respect to the introduction of a new product in a financial institution. The methodology provides the use of a checklist based on risk factors (causes) to assess the operational riskiness of a new product before its launch. Then, after the launch and with particular reference to the management of a new product, we use the Analytic Hierarchy Process (AHP) approach to prioritize operational risk events, and the 80/20 rule to allocate them in appropriate risk rating classes. As a further element with respect to the aforementioned framework, we then develop an optimization model to minimize the total cost of investments required to cover all the important risks. Furthermore, we to study the relationship between the total cost of investments and the exposure coverage by means of another optimization model.
Giacchero, A., Moretti, J., Cesarone, F., & Tardella, F. (2018). Operational risk assessment of a new product using AHP. In XIX Workshop on Quantitative Finance (pp.24-24).
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11590/328796
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