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  • #161
    Nitin Iyer
    Member

    Question 255 Exam 3

    #735
    Anonymous
    Guest

    The explanation to question 255 on riskprep is:

    The Basel II framework allows the use of the basic indicator approach, the standardized approach and the advanced measurement approaches for operational risk. There is no approach called the ‘internal measurement approach’ permitted for operational risk.

    But the handbook has a whole section on Internal Measurement Approach.

    And wiki http://en.wikipedia.org/wiki/Basel_II has this:
    For operational risk, there are three different approaches – basic indicator approach or BIA, standardized approach or STA, and the internal measurement approach (an advanced form of which is the advanced measurement approach or AMA).

    Is Internal Measurement Approach is a valid Ops Risk approach under Basel II, or no?

    Can somebody please clarify?

    #741
    Mukul Pareek
    Keymaster

    Indeed, the Wikipedia entry refers to the internal measurement approach, and section II.C.3.4 of the PRMIA handbook is titled the internal measurement approach.

    But on a reading of the Basel framework itself, there is no reference to the internal measurement approach to be found. The Basel II document is available here in its entirety – http://www.bis.org/publ/bcbs128.pdf – and if you look at paras 645 onwards, you will see no reference to anything called the internal measurement approach.

    Which is what led me to conclude that the internal measurement approach referred to by Carol Alexander was just a loose way of describing a way to measure operational risk, and was not a Basel term.

    Mukul Pareek

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