The DS Evidence Theory on Banking Operational Risk Management: New Methodology and Application

Measurement of operational risk (oprisk) is one of the primary management concerns of banks. Because of the uncertainty common in assessing oprisk it´s important to use the uncertainty reasoning theory to quantify the information from experts, owing to the key role of the experts´ knowledge to the oprisk measurement. This paper used the DS evidence theory to establish the frame of discernment, collect the information from experts, and adopt 2 kinds of weight coefficients: weights of same group experts and weights of different groups, to modify the Dempster´s combining formula to find the final assessment of operational risk. The paper it confirms the validity of this method through demonstration on 3 commercial banks in China.