Assimilating operational risks in common trading systems

Dror Parnes

Journal of Operational Risk

Abstract: We present a stochastic model that incorporates operational hazards within ordinary trading systems. We develop a simple compartmental theory that utilizes a predetermined lower threshold in the total assets' value to differentiate between operative and inoperative cycles in portfolio management. We then distinguish between two general failure modes, which may evolve due to either exogenous (market) or endogenous (operational) factors. We derive the pertinent time-related likelihoods of being in each state of nature, the accumulated probabilities of remaining operative or to breaching the predetermined lower boundary, and the expected time to portfolio termination, and hence the mean time to failure. We further simulate these derivations to demonstrate the model's universal functionality. Please click here to download PDF

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-operational-risk/2 ... mmon-trading-systems (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ3:2330863

Access Statistics for this article

More articles in Journal of Operational Risk from Journal of Operational Risk
Bibliographic data for series maintained by Thomas Paine (maintainer@infopro-digital.com).