Estimating One-Off Operational Risk Events with the Lossless Fuzzy Weighted Average Method

  • Pasi Luukka
  • Mikael Collan
  • Fai Tam
  • Yuri Lawryshyn
Chapter
First Online:
Part of the Studies in Fuzziness and Soft Computing book series (STUDFUZZ, volume 357)

Abstract

Banks are required by the Basel II Accord to report on their operational risks, including reporting an estimate for the size of possible one-off negative operational events. The typical way to produce these estimates is to use a quantitative value at risk methodology that is based on a limited amount of data, but also the use of qualitative, expert estimate-based methodologies is sanctioned by the regulations. The final estimations are most often reached by fusing the input from multiple experts. In this chapter we propose and introduce a new lossless fuzzy weighted averaging method and show how and why it is a usable tool for the aggregation of expert estimates in the context of estimating the unlikely one-off operational losses originating from single risks. The method is simple to use, intuitive to understand, and does not suffer from the loss of information associated with using many other weighted averaging methods.

Keywords

Risk management Operational risk One-off events Information fusion Consensus Multi-expert decision-making 
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Copyright information

© Springer International Publishing AG 2018

Authors and Affiliations

  • Pasi Luukka
    • 1
  • Mikael Collan
    • 1
  • Fai Tam
    • 2
  • Yuri Lawryshyn
    • 2
  1. 1.School of Business and ManagementLappeenranta University of TechnologyLappeenrantaFinland
  2. 2.Centre for Management of Technology and EntrepreneurshipUniversity of TorontoTorontoCanada

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