Rough Set Approach to Case-Based Reasoning for Operation Risk Analysis under Basel II

With the Basel Committee revised the position on operational risk management in 2002, it is urgent for the banks to find some suitable methods to analyze their operation risk. Case-based reasoning is the process of using solutions to previously encountered problems as a basis for reasoning solution to new problems. However, redundant features may lead to a high computational load in case retrieval. This paper presents a novel rough set- based case-based reasoning approach for operation risk analysis in banks under new Basel Capital Accord (Basel II). Through a rough set-based approach, case-based reasoning for operation risk analysis will reduce the redundant features while maintaining the classification accuracy.