PROBABILISTIC MODELLING OF OPERATIONAL RISKS
Keywords:operational risks, probabilistic modelling, Bayesian methodology, expert estimates, actuarial processes
Background. Operational risks are inherent to all types of human activity, including industrial production, transport, financial services, etc. Risks of this kind are characterized by many uncertainties, incompleteness and low data quality, that complicate prediction and assessment. To perform modelling of the process associated with operational risk it is necessary to carry out a proper data processing as well as identification, taking into consideration possible uncertainties. The probabilistic approach to modelling is very helpful in solving the problems.
Objective. The purpose of the paper is to make brief overview of probabilistic data analysis methods designed to build mathematical models of operational risks. To develop a new probabilistic model in the form of a Bayesian network to describe formally the operational risk of fraud associated with actuarial processes.
Methods. The basic methodology used for data and expert estimates processing are Bayesian data analysis techniques that help to construct probabilistic models in the form of Bayesian networks.
Results. The proposed modelling method was applied to constructing model of operational risk, more specifically risk of fraud in actuarial sphere. To construct the model the problem was analysed, a set of variables was selected, and prior estimates for conditional probabilities were estimated. The final model was constructed using the modelling system GeNIe. The model functioning was demonstrated using illustrative example.
Conclusions. It was shown that modelling, estimating and forecasting financial and other types of risks is important practical problem that can be solved using probabilistic approach, namely Bayesian methodology that helps to identify and take into consideration possible uncertainties of data and expert estimates. The operational risk model constructed using the methodology illustrates the possibilities of app.
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