Risk Taxonomy

Two New Taxonomies Introduced in the Open Risk Manual

Two New Taxonomies Introduced in the Open Risk Manual

Reading Time: 3 min.
The Role of Open Risk Manual Taxonomies A taxonomy is the categorization of concepts. It can be a very useful tool in supporting effective knowledge management. Fundamentally a taxonomy is a scheme of classification, typically a hierarchical classification, in which things or concepts are organized into groups or types of increasing specificity. Mathematically, a hierarchical taxonomy is a tree structure of classifications for a given set of objects. It is sometimes also named a containment hierarchy.
Taxonomy of Uncertainty

Taxonomy of Uncertainty

We review and synthesize into a taxonomy a number of related concepts and terms describing uncertainty, risk, randomness and model risk

Reading Time: 14 min.
Risk, Randomness, Uncertainty and other Ambiguous Terms Uncertainty versus Risk is a popular discussion topic among risk managers, especially after major risk management disasters. The debate can get really hairy and drift into deep philosophical areas about the nature of knowledge etc. Yet the significance of having an as clear as possible language toolkit around these terms should not be underestimated. Practical risk management typically shuns too deep excursions into the meaning of things, yet that is not quite compatible with the use of sophisticated methods and tools (such as a Risk Model ) that assumes an understanding of the scope and limitations of “knowledge”.
Risk Function Ontology

Risk Function Ontology

The Risk Function Ontology (RFO) is a new ontology describing risk management roles (posts) and functions.

Reading Time: 3 min.
The Risk Function Ontology The Risk Function Ontology is a framework that aims to represent and categorize knowledge about risk management functions using semantic web information technologies. Codenamed RFO codifies the relationship between the various components of a risk management organization. Individuals, teams or even whole departments tasked with risk management exist in some shape or form in most organizations. The ontology allows the definition of risk management roles in more precise terms, which in turn can be used in a variety of contexts: towards better structured actual job descriptions, more accurate description of internal processes and easier inspection of alignement and consistency with risk taxonomies.
Risk Compensation: From Face Masks to Credit, Market and Systemic Risk

Risk Compensation: From Face Masks to Credit, Market and Systemic Risk

Reading Time: 7 min.
What is Risk Compensation? Risk Compensation is a behavioral model of human attitudes towards risk which suggests that people might adjust their behavior in response to the perceived level of risk. It follows that, depending on the strength of the effect, that it might counteract and even annul the impact of risk mitigation, if the updated attitude and behavior modifies the actual underlying risk Examples of potential risk compensation effects abound A prominent example of potential risk compensation in recent times that established the concept in more formal terms in public policy debates concerned the beneficial role of safety belts in automobiles.
NACE Classification and the EU Sustainable Finance Taxonomy

NACE Classification and the EU Sustainable Finance Taxonomy

Reading Time: 1 min.
NACE Classification and the EU Sustainable Finance Taxonomy The integration of climate risk and broader sustainability constraints into risk management is a monumental task and many tools are still lacking. Yet there is strong support and bold initiatives from policy bodies and an increasing focus from the private sector side. The EU (Sustainable Finance) Taxonomy is one such initiative of fundamental significance as it attempts to map at a granular level economic activities with respect to their climate risk mitigation or adaptation potential and create tangible metrics and thresholds to measure progress (the ultimate anti-greenwashing treatment)
What constitutes a good risk taxonomy?

What constitutes a good risk taxonomy?

Reading Time: 4 min.
What is a Risk Taxonomy? There are various formal definitions of risk taxonomies (and we will go over those below), but it might be useful to first look at a very intuitive example of a risk taxonomy: the classification of fire hazards (also known as fire classes) Everybody knows (or should know!) that the different types of fire (which is the underlying Risk in this context) cannot be treated the same way because they respond in different ways to the substances used to suppress the fire.
White Paper 05, Identification of Business Model Risks

White Paper 05, Identification of Business Model Risks

Reading Time: 0 min.
Open Risk White Paper 5: Identification Framework for Business Model Risks We develop an analytical framework for the systematic identification of business model risks. The framework utilizes as a starting point a simplified business model schema known as the Business Model Canvas. We review each one of the elements of the schema in turn, identifying the main risk characteristics associated with each. Download Download OpenRiskWP05_010916 Citation @ARTICLE{OpenRiskWhitePaper05, author = {P.
White Paper 04, Open Risk Model Taxonomy

White Paper 04, Open Risk Model Taxonomy

Reading Time: 1 min.
Open Risk White Paper 4: Open Risk Model Taxonomy We develop a taxonomy for risk models that aims to support an open source risk models framework. The proposal builds on and extends some commonly used risk taxonomies within financial services firms but introduces some significant new elements. We first review the motivation for risk taxonomies, the concepts and tools that are involved and some weaknesses of current schemes. We try also to clarify the link between risk models and risk taxonomies.
Unbundling the Banks: A How To Guide

Unbundling the Banks: A How To Guide

Reading Time: 5 min.
Unbundling the Banks: A How To Guide Talk of unbundling the banks is all the rage these days (if we believe the fintech startups). Yet upon closer inspection one gets the feeling that these optimistic people might not necessarily know exactly what they are trying to unbundle, the true complexity of a medium to large bank, which in turn reflects, at least in part, the complexity of our modern financial system.
The periodic table of risk elements

The periodic table of risk elements

Reading Time: 5 min.
The periodic table of risk elements You know the periodic table of elements, even if you flunked your science courses! It is the large colorful and blocky table that hanged on every school’s classrooms before becoming yet another mobile app. The periodic table is one of the early and iconic achievements of science. It lists all the pure chemical elements found in nature, the building blocks of all possible material substances.