After completing this reading, you should be able to: Explain Basel regulatory expectations for an operational risk management framework’s governance. Describe and compare the roles of different committees and the board of directors in operational risk governance. Describe the…

Definition: Let \(X_{1}, X_{2}, \ldots, X_{n}\) be random variables and let \(c_{1}, c_{2}, \ldots, c_{n}\) be constants. Then, $$ \text{Y}=\text{c}_{1} \text{X}_{1}+\text{c}_{2} \text{X}_{2}+\cdots+\text{c}_{\text{n}} \text{X}_{\text{n}} $$ is a linear combination of \(X_{1}, X_{2}, \ldots, X_{n}\). In this reading, however, we will only…

Let \(\text{X}\) and \(\text{Y}\) be two discrete random variables, with a joint probability mass function, \(\text{f}(\text{x}, \text{y})\). Then, the random variables \(\text{X}\) and \(\text{Y}\) are said to be independent if and only if, $$ \text{f}(\text{x}, \text{y})=\text{f}(\text{x}) * \text{f}(\text{y}), \quad \text…

After completing this reading, you should be able to: Describe the rationale for the use of stress testing as a risk management tool. Identify key aspects of stress testing governance, including choice of scenarios, regulatory specifications, model building, stress-testing coverage,…