Scenario analysis: the way forward

Of the four elements that Basel uses as inputs for the AMA, scenario analysis has only recently been seen as perhaps the most important.

It Is almost a truism that operational risk measurement is a beast of a very different stripe from the measurement of market and credit risk – it's an altogether more elusive creature – but the extent of the difference has become clearer since banks started to explore the use of scenario analysis.

By Duncan Wood

Scenario analysis is one of the four elements that the Basel Accord requires banks to use as an input to the advanced measurement approach (AMA) for op risk capital – the other three