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Modeling
Challenges: Measuring Operational Risks
>Probability in theory requires historic data for its calculations – a suitably relevant
concept as far as
market and credit risks are concerned.
>But what about operational risk? Is
history a logically valid parameter to predict potential future operational losses?
Specially frequency!
>An operational risk event that happens
today will be met by immediate counter measures reducing the probability of its happening again in the
same manner.
>If something can happen and has not
happened so far, then with every passing day, the probability of its happening increases!
>So, meta-theoretically, what has happened in past has less probability and what has not happened so far has greater probability of happening!