Modeling and simulation of the operational risk of fiduciary institutions in Colombia

Abstract

Through this work, a model was developed that has become the first experience to measure and forecast the impact that net losses have had on operating risk in fiduciary companies in Colombia and that would allow fiduciary companies to study and analyze the evolution and impact that operating risk has on their profits. The financial services industry sector has been exposed to a number of risks that lead to losses in these entities, and in the financial system in general; thus, through the definition of operational risk and operational risk management, the study of risk indicators is implemented through the EaR (Risk Usability) methodology, established in three phases: on the one hand, the selection and compilation of the financial information of the fiduciaries to be studied; the determination of the financial statements, with the construction of the income statement, and ending with the determination of the probabilistic distribution that adapts to the historical information, to then determine the correlations between the determined accounts, in order to be able to establish the EaR through Monte Carlo simulations. In this way, it was possible not only to build a model to quantify operating risk, based on financial information on income and expenses, but also to obtain relevant statistical information on the impact of operating risk.