A new methodology for determining economic capital for operational risk was recently proposed by the North-West University’s (NWU’S) Centre for Business Mathematics and Informatics (BMI). This model was subsequently successfully introduced to the South African financial services sector and is now being implemented by Absa as part of their operational risk processes.

More about the research

The research in operational risk started some time ago and involved several applied research projects, MSc and PhD dissertations and research papers. The latter being co-authored by a number of extra-ordinary professors.

One of these papers entitled “Combining scenario and historical data in the Loss Distribution Approach: A new procedure that incorporates measures of agreement between scenarios and historical data” received Best Paper awards from both the Actuarial Society of South Africa and the South African Statistical Association. The paper was also incorporated into the Institute and Faculty of Actuaries’ Good Practice Guide to Setting Inputs for Operational Risk Models as published in the British Actuarial Journal.

A second research paper entitled “A simulation comparison of quintile approximation techniques for compound distributions popular in operational risk” won the Risk.Net Operational Risk Paper of the Year award. The award was presented at a glittering award ceremony in the United Kingdom.

* The Research Unit for Business Mathematics and Informatics focuses on applied research in the broad areas of financial risk management and telecommunications applications modelling and basic research in the mathematical, economical and computational sciences. The Centre for Business, Mathematics and Informatics (BMI) is housed within the unit in the Faculty of Natural and Agricultural Sciences.