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Published on Feb 7, 2013
Professor Stephen Brown, NYU Stern School of Business, presents Basel II defines operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes people or systems or from external events abstracting from market risk and reputational risk. The challenge is to develop quantitative measures of operational risk exposure in an institutional hedge fund asset management context where there may be only limited transparency. This is particularly the case for hedge funds. We argue that managing this risk through operational due diligence is actually a source of alpha in this funds management context.