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Basel Operational Risk Models and the Standardised Measurement Approach

Article Quant Q&A · Author: Luigi87
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Summary

The question describes an organization estimating operational losses from departmental questionnaires rather than a historical loss database. Respondents provide estimated minimum, maximum, and median loss amounts and annual occurrence counts, and the question asks whether the Basel Advanced Measurement Approach or a related approach can produce total expected losses and a loss distribution.

The response points to a public implementation of the Standardised Measurement Approach (SMA), with code that can also compare capital requirements from older Basel II approaches. It does not establish that this code accepts questionnaire estimates, derives a loss distribution from them, or satisfies the organization’s regulatory requirements. The respondent had not run the implementation. The document therefore offers a code lead for SMA calculations, not a validated modeling method for sparse or subjective loss data; the definitions of the queried COM approach and its suitability are also left unresolved.

Key ideas

  • The question’s loss inputs come from departmental estimates rather than recorded historical events.
  • The response identifies an implementation of the Basel Standardised Measurement Approach.
  • The cited code is described as supporting comparisons with older Basel II capital approaches.
  • The response does not verify the code or show how questionnaire inputs produce a loss distribution.

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# Code (Python or R) references for operational risk models (AMA/COM)


# Code (Python or R) references for operational risk models (AMA/COM)












I have to build an operational risk model and to be compliant with Basell II and III regulations I thought of using AMA (Advanced measurement approach) or COM (change of measurement). We have no historical data in the sense that what my company does is spreading around a questionnaire where the heads of the departments have to indicate for each risk category the amount of money (in their opinion) was wasted for that category and how many times that loss occurred in 1 year. They fill out a table in which there is MIN, MAX, MEDIAN..in Euros.

The goal is to estimate the total losses so I want in the end a number in Euros, and in addition also the distribution of this loss.

Do you agree with using the approaches AMA or COM? I noticed they want in input recordings of the past losses per each category but I do not have such data.

Have you got any reference where it is shown the code to implement those?

Many thanks everybody in advance

## Answer by Dimitri Vulis (score 1)

https://quant.stackexchange.com/a/58205

I googled and found https://github.com/TommasoBelluzzo/BaselTools . It says:

> BaselOP The tool can be run by executing the BaselOP.m script. The underlying calculations are based on the SMA model defined within the BCBS 356. The application offers the opportunity to compare the SMA capital requirements with those produced by the obsolete Basel II approaches defined in BCBS 128: the Basic Indicator Approach, the Standardised Approach and the Alternative Standardised Approach.

It looks like readable matlab code implementing the SMA. I haven't tried running it, but it looks like it would be helpful to someone tasked with implementing SMA.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.