Connectivity and the measurement of operational risk: an input-output approach
In this article I propose a framework for the analysis of the interdependencies within a financial institution that is based on the input-output framework originally developed by Leontiev (1941). After discussing the state of the art of operational risk measurement, I briefly review the foundations of input-output analysis and explain how to build an input-output model at the business unit level for a financial institution. I also discuss the suitability of an input-output model in capturing the impact on operational risk losses of the interdependencies within a financial institution and then present, through some numerical examples, how to implement the model within a quantitative framework for the measurement of operational risk.
connectivity operational risk measurement input-output models complexity