Banks that want to measure operational risk exposure effectively should consider a modified decision tree approach.The so-called OpRisk Tree model facilitates the accurate measurement of the regulatory and economic capital components of operational risk. Dr. Henry L. Lee outlines this methodology, details the steps a bank needs to take to compute capital using this approach ... click here for more details.

What steps must a financial institution take to comply with Basel II requirements for economic capital (EC)? And how do EAD, PD and LGD factor into the determination of EC credit risk? Dr. Marco Folpmers answers these questions and offers a practical approach for calculating EC for residential mortgages.

The stock market is driving the adoption of forward-looking risk management practices. Shareholders are increasingly recognizing banks that use advanced credit analytics. John Hurlock explains why banks that employ predictive analytics hold a big advantage over competitors that are strictly compliance driven.

Why are the Basel II requirements for downturn loss-given default (LGD) estimations problematic? What challenges do they present and should banks consider a different approach for downturn calculations? Sunil Verma describes the current LGD dilemma and recommends an alternative, loss value-at-risk model.

Abhishek Hirpara, the leader of GARP’s first-ever college chapter and a recent winner of a financial risk manager (FRM) scholarship, explains how his experiences with the association helped him land his first professional risk management position.

Though it is difficult to master, Monte Carlo analysis is an extremely valuable risk management technique. Aaron Brown discusses the origins of Monte Carlo, examines the differences between Monte Carlo and simulation and explains why it is so important for Monte Carlo users to understand its mathematical subtleties.

What are the skills that chief risk officers look for in their direct reports and key hires? What are the hottest risk management jobs on the buy side and sell side? And what trends will influence risk compensation and hiring over the next few years? Michael Woodrow answers these questions ... click here for more details.

What is captive insurance? What are its origins? And how, exactly, is it connected with risk management? Andrew Barile explains the risk benefits offered by captive insurance companies and examines the obstacles facing risk managers working in this industry.

Hedge funds have experienced tremendous growth recently, but still suffer from a high failure rate. Armelle Guizot contends that poor risk management is at the root of this dichotomy, outlines the steps regulators are taking to fix this problem and emphasizes the need for the fund industry to adopt standards.

Overview of articles in this issue.