# Operational Risk Analysis

Operational risk analysis is a special application of the general simulation analysis of the R/V Platform. The definition of operational risk in regulatory (Basel II and III advanced approaches) sense is that operational risk is the loss over a 12 month time horizon due to occurrence of operational risk events.

The definition suggests a natural stochastic model of operational risk where losses to occur over the next 12 months are determined by the number of (different type) operational risk events and by the (uncertain) losses due to the different type of events. The aggregate losses are obtained by multiplying the distributions of number of events and loss intensities of those events by each other.

Time paths of operational risk losses are irrelevant due to the special definition of the regulatory concept. Only 12 month losses matter in determining the capital requirement. The R/V Platform generates operational risk loss distributions for both the individual operational risk types and the aggregate risk. These distributions can be further analysed by different statistics available in the system, e.g. by evaluating the losses on different confidence levels, which can be freely set by the user.