Using Bayesian Networks to Model Operational Risk of Bank

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It is difficult to model and measure operational risk of bank. The Bayesian network has a great deal of advantage in Modeling and measuring Operational Risk, which is induced by uncertain elements in a complicated system. After review operational risk of bank and Bayesian networks, this paper illustrates how to use Bayesian networks to manage operational risk by examples, include measure risk, casual analysis, and scenario Analysis etc. This paper also gives a Bayesian network model framework of operational risk.