New regulatory requirements and shareholder demands have increased the need for operational risk modeling and management. To safeguard against operational risk, many financial institutions have adopted the Change of Measure (COM) approach described in a groundbreaking paper by Kabir Dutta and David Babbel1. Several major U.S. banks have already committed resources to developing proprietary models of the COM approach, which combines internal loss data with scenario analysis to calculate a single, reliable estimate of operational risk capital.
Working in MATLAB®, analysts at Wolters Kluwer have developed the first implementation of the COM approach that enables financial institutions to apply COM without developing their own models.
“MATLAB and Statistics and Machine Learning Toolbox enabled us to rapidly implement the COM methodology,” says Dr. Aniruddho Sanyal, senior consultant at Wolters Kluwer. “With MATLAB Compiler we packaged our implementation as a Microsoft Excel add-in that our clients can access from within Excel to perform their own operational risk analyses.”