Customer Reviews

Modeling, Measuring and Hedging Operational Risk

5 star:		(4)
4 star:		(0)
3 star:		(2)
2 star:		(1)
1 star:		(3)

 

 

This is a much expected book in the operational risk area. I have got one as soon as it was released and I am getting more impressed with it every day as I try the models suggested by the author. The book is composed by a coherent sequence of mathematical models and techniques (all nicely explained with examples and extremely well-written)that at the end help you to measure and manage operational risk in practice. All the examples use real loss data and key risk indicators.
It is hard to identify the best part of the book. The chapters on causal models and stress tests are just a prime in the area as much as those on operational VaR. The text on stochastic models left me asking "why didn't I think of that before?". The chapters on the measurement of "soft risks" as those on reputational and key personnel risks are the first that I have seen on the subject and give an excellent insight on how to deal with this extremely difficult subject. This book should be on the shelf of any financial risk manager and it will set up the standards in the area for the next years. Operational risk finally find its "riskmetrics". As much as one day 'riskmetrics', 'creditmetrics' and CreditRisk+ were released by JP Morgan and CSFB setting up the grounds for the development of the both market and credit risk measurement, this book do the same for operational risk. At least everyone involved with operational risk should have it if not for anything just as a reference.

Before I read this book, I had heard it was the bible for operation risk and is great as an introductory book for finance. After I read 1/3 of the book, I figured this book is actually for people who failed their second year statistics courses and still have no idea what raw and central moments are. As a grad student in Actuarial Science in one of the best schools in the world, I strongly discourage people from buying this book. Technically, this book has so many mistakes that it would not be qualified as a textbook in any schools in the world. The author introduces a lot of statistical tests without even defining the notations, which makes the tests useless.

This book is probably the best single book available in Operational Risk at the moment. It give a very nice overview of the topic and on implementation possibilities.
Still, there are some letdowns:
1. The last parts on hedging and operational risk management are not very helpful while the part on operational VaR should be expanded.

2. The book contains quite a number of errors. While this is not so important if this happens in written text, it definitely is within formulas (as in density of the normal distribution on page 50, and several others), especially since not everybody will see this kind of mistake at first sight. It should have been revised once more, maybe.

Still, I recommend to anyone who wants to get an overview of operational risk. But read carefully.

This is by far the best book in the area. It brings in details all the current technical discussions allowing even the reader with minimal math background to understand and even try the techniques stated in the book. Every risk manager must have it at least as a reference. The author carefully describes several techniques as:
1) Loss distribution approaches;
2) Scorecard approach;
3) Extreme value theory;
4) OpRisk management models;
5) Modeling and developing hedging programs.

Excellent value for the money!

Because it was recommended by someone else, I chose this book to use in a class where we used a few weeks to cover the fundamentals of operational risk. It was my worst choice ever. It's true that the book contains many good ideas on risk management. But, from the quantitative point of view it's terrible. I think not a single page is free of mistakes. If you're thinking of implementing something, this book is useless. You'll end up looking somewhere else to get the right formulas.

I only got to page 100 so far, but there seems to be a bug on very other page. It's more like a test for the reader "see if you can find all the mistakes". I'm rather disappointed. If this book is aiming to become a "statistical bible" of the operational risk industry, the formulas, graphs, examples etc need revision.

Marcelo's book covers a range of topics related to Operational Risk Measurement and Management starting with the data requirements, followed by short chapters on probability theory and relevant statistical distributions for measuring frequency and severity of losses, and then the process of building a model to estimate the aggregate distribution of operational losses at the enterprise level. Thereafter, the author discusses backtesting and some innvovative modeling techniques, including the application of time-series techniques and non-parametric methods. There are sections in the book on operational risk management and hedging also on regulatory capital. The book is well written although the content in many chapters is extremely brief and there are few references to the large volume of published articles. In particular, most financial institutions are faced with the challenge of buliding models that satisfy regulatory requirements and are also applicable for decision making (i.e., economic capital). The book is outdated in this respect, as it does not cover the Basel requirements under the Advanced Measurement Approach. It also provides little insight into scenario analysis, that is quite critical for measuring losses, when faced with the lack of adequate internal loss data across many business lines. Detailed description of the design and structure of a scenario analysis program for operational risk measurement, is an area for improvement in the next edition of the book. Furthermore, a discussion of the role for BEICF's in loss measurement, is also recommended.

This is the best book in operational risk by far. It shows, on a very clear way, how to implement complex algorithms that can be used in the measurement and management of oprisk. The most interesting part of the book is the one on oprisk management and oprisk stress tests and scenario analysis. Superb! Every risk manager should have it at least as a reference.

Compulsory reading for those interested not just in operational risk but in risk management as a whole. The author turns difficult mathematical concepts into easy Excel examples solved on a step-by-step basis. Very insightful all along!

The book is for those with a Phd or strong math background - the writer does not attempt to cater to anyone else. Don't bother trying to understand the models discussed if you don't have this knowledge - get your Phd first! A waste of money unless you know mathematical concepts such as MLE, Fast Fourier etc.