Modelling with Monte Carlo Plus

Following on from the Prudential Capital Requirements round table, Dr Mustafa Cavus, from Monte Carlo Plus, will lead our discussion on firms can use modelling, both scenario and correlation based, to use their capital more efficiently.

Within investment management and brokerage industry, relevant data for operational risk modelling is hard to find, though 60-70% of the prudential capital requirement relates to operational risk. The majority of the historical loss data relates to minor loss amounts and most of these are trading and market types of risks.  There are only a few actual historical large losses within firms. Therefore, forward-looking modelling of severe but plausible risk scenarios is the only source of risk assessment. For modelling scenarios, the FCA in its final guidance paper (FG 20/1) makes a number of significant statements. Page 19, for example, states “Firms should consider ‘what-if’ scenarios for the activities undertaken, the harms that can be caused and the events leading to those harms, taking into consideration the likelihood of events, that all events might not occur at the same time … where a firm’s control framework is sophisticated enough, may be further supported by statistical models.” We will show examples of how such what-if scenarios in the investment and brokerage firms’ settings can comply with the FCA requirements and increase capital efficiency at the same time.

This is part of a series of round tables in conjunction with Monte Carlo Plus. If you would like to attend this video conference, or any others in the series please email: events@thebrokerclub.org