1. - Email:shang@gcprm.com (GCPRM) www.gcprm.com 1

2. BCBS . International Convergence of Capital Measurement and CapitalStandards A Revised Framework -Comprehensive Version[R]. June2006 A Tale of Tails: An Empirical Analysis of Loss Distribution Models forEstimating Operational Risk Capital[R]. Federal Reserve Bank of BostonWorking Paper No. 06-13. 2007 APRA. Capital Adequacy-Advanced Measurement Approaches toOperational Risk[R]. Prudential Standard APS 115January 2008 BCBS. Observed range of practice in key elements of AdvancedMeasurement Approaches AMA [R]. July 2009 BCBS. Results from the 2008 Loss Data Collection Exercise forOperational Risk[R]. July 2009 BCBS. Principles for Enhancing Corporate Governance-finalDocument[R]. October 2010 OCC. Interagency Guidance on the Advanced MeasurementApproaches for Operational Risk[R]. June 3 2011 BCBS. Operational Risk-supervisory Guidelines for the AdvancedMeasurement Approaches[R]. June 2011 GCPRMPRMIA 2 3. 2007 12 7 2011 6OCC2011 BCBS 2011 7 BCBS 2011GCPRMPRMIA 3 4. BCBS2011(ORMF) ORMS: GCPRMPRMIA 4 5. Operational Risk Manageme nt:A Road Map for Business Value Dr Chris Marshall PRMIA GCPRMPRMIA5 6. BCBS2010 :RCSA :KRI 6 :Verification GCPRMPRMIA 7. Operational Risk HFLSLFHS Top-Down Approach Bottom-up Approach HFLSLFHS GCPRMPRMIA 7 8. Top-down Bottom-up Audit Oversight Critical self-assessment Key risk indicators Earnings volatility Causal networks Actuarial models GCPRMPRMIA 8 9. Top-down:Multifactor Model residential variance() R1-R public trading company()GCPRMPRMIA9 10. Bottom-up:Parametric loss distributions Possion distributionAssuming events are independent of each other LognormalWeibull Extreme value theory (LFHS)Extreme losses morelikely thanstandard distributionFat TailGCPRMPRMIA 10 11. Expected Loss Unexpected Loss Stress Loss Insurance LFHS GCPRMPRMIA 11 12. firm manage risk internally. Captive Insurers ( parent company ) Preferential tax treatment swap,forwards options GCPRMPRMIA12 13. Catastrophe OptionsCBOT Catastrophe optionsOnly a spread option Whether derivativesDerive value from indexes based on weather conditions ( Precipitation)(auto-correlation)GCPRMPRMIA13 14. Catastrophe bonds Indexed notes Not Subject to moral hazardproblemParametric notes Hurricane USAA GCPRMPRMIA 14 15. ORMS) AMA LDA SBA 1 99.9%BCBS 2009 OCC 2011 GCPRMPRMIA 15 16. ORMS) 99.99% percentileAdjusted CapitalRegulatory Add Scorecard / KRIonSample DataAggregated LossDistribution99.99% percentile Soft Distribution 99.99% percentile Hard DistributionSBALDA GCPRMPRMIA 16 17. ORMS)1LDA ORC(A-DK-S ) BCBS 2011 GCPRMPRMIA 17 18. ORMS)2 Scenario BasedApproach SBA GCPRMPRMIA 18 19. ORMS) convolution GCPRMPRMIA 19 20. ORMS) 0.1*0.5*0.5 0.1*0.5*0.3 GCPRMPRMIA 20 21. ORMS) 95%VaR1096.4%GCPRMPRMIA 21 22. ORMS) BASEL(2009) X42(%) 5 20 7 9C20,000 X C100,000 88,33776.95% 2,06345,311 1,636 39,327 C100,000XC1,000,000 23,45120.43%528 13,9104108,693C1,000,000XC2,000,000 1,408 1.23% 33820 20 535C2,000,000XC5,000,0009350.81% 315536 345C5,000,000X 6620.58% 22341 11 288 GCPRMPRMIA 22 23. ORMS) ORM Matrix ProbabilityS FrequentLikelyOccasional Seldom UnlikelyEV CatastrophicExtremely HighER CriticalHighI Moderate MediumTy Negligible Low GCPRMPRMIA23 23 24. ORMS) SA BEICFs HFLI LFHI ILDED BEICFsSDGCPRMPRMIA 24 25. (Market Value ) OPERATIONAL RISK MEASUREMENT: QUALITATIVEAPPROACHES(2009)-REACTION OF STOCK RETURNS TOOPERATIONAL RISK EVENTS The market value impact of operational loss events has not beeninvestigated extensively in the literature. There are two reasons for this:the recent focus on the importance of operational losses and the lack ofoperational loss data, except for high-severity, low-frequency events(see Cummins et al.2006 for an event study on U.S. financialinstitutions). () GCPRMPRMIA 25 26. (Market Value ) Step1: :(2008) 2013 1 27% GCPRMPRMIA26 27. (Market Value ) 2008915(Lehman Brothers Holdings)(American International Group; AIG)911 2008/9/18 -2.7396 3.8647 -2.217 -0.02682008/9/170.7692 -4.06331.2065 -3.62512008/9/16 -4.8883 1.2962-4.9534 -5.43742008/9/15-4.092 -4.4167 4-10.9507 -3.3191 -5.9639 -9.0893 DX 2008/9/18 -0.0033 0.0416-2.3041 -2.11782008/9/17-1.712 -1.74662.7029 0.34542008/9/16 -1.0102 -1.6324 -6.1011 -5.06542008/9/15 -3.2723 -2.7383 4 -5.9978 -6.0757 -5.7023 -6.8378 GCPRMPRMIA27 28. (Market Value ) : (http://chinese.wsj.com/big5/index.asp)2008/9/22008/9/8 2008/9/9? 2008/9/11 2008/9/11 2008/9/12 2008/9/15 2008/9/15 2008/9/15 2008/9/15 2008/9/16 FedAIG 2008/9/17 AIG 2008/9/18 AIG 2008/9/22 2008/9/22 2008/9/24 2008/9/26 WaMu 2008/9/30GCPRMPRMIA28 29. (Market Value )Step2: 20089152008915102830915912302008842008912 2008/8/4~2008/9/12 30 2008/9/15~2008/10/28302008/8/4~2008/10/2860 ()2008/9/15 1() 2008/8/4~2008/10/2961 2007/11/9~2008/8/1 180GCPRMPRMIA29 30. (Market Value ) Step2: Ri,t i i Rm ,t i ,tGCPRMPRMIA 30Here comes your footer Page 30 31. (Market Value ) (Abnomal Return,AR)E(R)^^E ( Rt ) R m ,t AR t Rt E ( Rt ) GCPRMPRMIA 31 32. (Market Value ) t2CAR ( t 1 , t 2 ) t t1 AR t Z0 GCPRMPRMIA 32 33. (Market Value ) (%) 50100 IT 50 CAR(-30,-1) 2.9656 -1.0839 4.77196.0924.97913.0701 t 0.9173 -0.2368 0.84641.2618 1.31310.4703 CAR(0,29) 0.0045 -3.1225 -6.9719 1.9236 -3.2437 -18.8886 t 0.0014 -0.6822 -1.2367 0.3984 -0.8554 -2.8935 *** CAR(-30,29) 2.9701 -4.2065-2.2 8.0157 1.7354-15.8185 t 0.6496 -0.6499 -0.2759 1.1740.3236-1.7135 * GCPRMPRMIA33 34. 0055 2.6033%4.2120% 1 .6087% 28012.7328%3.5824% 0 .8496% 2834 2.6192%3.9619% 1 .3427% 2854 3.9472%3.7704% -0.1768% 2880 2.5314%3.7252% 1 .1937% 2881 2.6212%4.2200% 1 .5988% 2882 2.8099%3.9674% 1 .1576% 2883 2.7424%4.2893% 1 .5469% 2884 2.4592%3.7625% 1 .3033% 2885 3.9478%4.2218% 0 .2741% 2886 2.4089%3.2660% 0 .8571% 2887 2.9553%4.3953% 1 .4401% 2888 3.6526%4.4225% 0 .7699% 2890 3.3747%4.4349% 1 .0602% 2891 3.1324%4.0748% 0 .9424% 2892 2.8744%3.7182% 0 .8438% 58542.3246%3.9241% 1 .5996% 6008 4.2856%4.0920% -0.1935% 13 6 0 41117 S () N=174 60 P () 0.02450.1661 0.00****** GCPRMPRMIA34 35. (Market Value ) 0.08535060611.0796 50 100 IT 50 Alpha0 .0000 0.0175-0.0435 -0.0521 -0.0342 -0.0748 0.0853 Beta 1 .0000 1.00600.9566 0.8039 0.9704 0.9431 1.0796 -0.1356-0.1189 -0.1732 -0.1611 -0.1657 -0.2026 -0.061 11 .7771 1.88211.8932 1.7591 1.9355 1.8126 2.2568 -0.0763-0.0632 -0.0915 -0.0916 -0.0856 -0.1118 -0.027 1 -0.1356-0.1182 -0.1811 -0.2004 -0.1708 -0.2148 -0.056 6 0 .0000 0.0175-0.0435 -0.0521 -0.0342 -0.0748 0.0853GCPRMPRMIA35 36. Sound Practice Definition and Approval Internal Audit Scrutiny Formulation and Implementation Assessment and Identification Monitoring and reporting Control and Review Policies Contingency Strategies Public Disclosure GCPRMPRMIA 36 37. Sarbanes Oxley Act,SOA2002730SEC I II III IV V VI VII VIII IX X XI GCPRMPRMIA 37 38. GCPRMPRMIA 38 39. GCPRMPRMIA 39