analytics application: risk management
TRANSCRIPT
Analytics Application: Risk Management
Outline
• Defining Risk Management
• Types of Risk
• Applications of Analytics in Risk Management➢Financial Risk➢Operational Risk
Risk is…
Potential of gaining orlosing something ofvalue
Due to a potential,uncontrollable outcome
Source: https://en.wikipedia.org/wiki/Risk
What is Risk Management?
Risk Identification
Risk Measurement
Risk Mitigation
Risk Monitoring
Types of Risk
Source: http://smallbusiness.chron.com/types-business-risk-99.html
Strategic Risk Compliance Risk Financial Risk
Operational Risk Reputational Risk
Types of Risk
Source: http://smallbusiness.chron.com/types-business-risk-99.html
Strategic Risk Compliance Risk Financial Risk
Operational Risk Reputational Risk
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Correlation / Concentration of Risks
Association Analysis
• Related Counterparty Exposure
• Cross-default Exposure
• Industry Exposure
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Correlation / Concentration of Risks
Association Analysis
• Related Counterparty Exposure
• Cross-default Exposure
• Industry Exposure
Complex Risk Events
• Path Analysis
• SequenceAnalysis
• Path to default
• Path to Collection
• Path to Incidents
• Path to Fraud
• Path to Market Loss
• Path to Liquidity Loss
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Propensity Models
Logistic Regression
• Acquisition Scoring
• Behavioral Scoring
• Recovery Scoring
Fraud Scoring
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Propensity Models
Logistic Regression
• Acquisition Scoring
• Behavioral Scoring
• Recovery Scoring
Fraud Scoring
Classification / Rule Models
• Decision Trees
• Random Forests
• Credit Policy Rules
• Fraud Policy Rules
• Audit Rules
Trading Rules
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Forecasting • Time series Regression
• Panel models
• Volatilitymodels
• Provisions Forecasts
• Credit riskcapital
OperationalRisk Capital
• Market Risk Capital
• Liquidity Risk Capital
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Forecasting • Time series Regression
• Panel models
• Volatilitymodels
• Provisions Forecasts
• Credit riskcapital
OperationalRisk Capital
• Market Risk Capital
• Liquidity Risk Capital
Stress Testing • Monte Carlo Simulation
• Time-series Regression
Credit Value-at-Risk
Operations Value-at-Risk
Market Value-at-Risk
Analytics in Risk ManagementAnalytics Algorithm CREDIT OPERATIONS MARKET /
LIQUIDITYCOMPLIANCE
Forecasting • Time series Regression
• Panel models
• Volatilitymodels
• Provisions Forecasts
• Credit riskcapital
OperationalRisk Capital
• Market Risk Capital
• Liquidity Risk Capital
Stress Testing • Monte Carlo Simulation
• Time-series Regression
Credit Value-at-Risk
Operations Value-at-Risk
Market Value-at-Risk
Document Analysis
• TopicModels
• TF-IDF
Legal Document Classification / Compliance
Outline
• Defining Risk Management
• Types of Risk
• Applications of Analytics in Risk Management➢Financial Risk➢Operational Risk➢Compliance Risk
Analytics Application: Fraud Management
Outline
• Defining Fraud Detection
• List of Fraud Categories and Types
• Fraud Risk Management
• Survey of Techniques in Anomaly Detection
Fraud is…
ncommon
mperceptibly concealed
ell-considered
ime-evolving
arefully organized
Source: Van Vlasselaer, V., Eliassi-Radj, T., Akoglu, L., Snoeck, M., & Baesens, B. (2015). Gotcha! Network-based Fraud Detection for Social Security Fraud. Management Science, Submitted.
Fraud Types
• Credit Card Fraud
• Insurance Fraud
• Corruption
• Counterfeit
• Product Warranty Fraud
• Healthcare Fraud
• Telecommunications Fraud
• Money Laundering
• Click Fraud
• Identity Theft
• Tax Evasion
• Click Fraud
• Plagiarism
Fraud Management
Fraud Prevention
Fraud Detection
Fraud Response
Refers to measures that can be taken to
avoid or reduce fraud
Ability to recognize or discover fraud
Corrective actions taken in the event of a fraud
to minimize and recover losses and determine
accountabilities
Anomaly Detection
Anomaly Detection TechniquesDESCRIPTIVE
• Graphical Procedures
Box and Whisker Plot
Source: https://www.tibco.com/blog/2017/10/09/top-10-methods-for-outlier-detection-in-spotfire/
Histogram Scatterplot
Anomaly Detection TechniquesDESCRIPTIVE
• Statistical Techniques
z-scores Hypothesis Testing(Break Point and Peer
Analysis)
Association Analysis(Fraud Ring Detection)
Source: Baesens, B., Van Vlasselaer, V., & Verbeke, W. (2015). Fraud Analytics Using Descriptive, Predictive, and Social Network Techniques: A Guide to Data Science for FraudDetection. John Wiley & Sons, Inc.
Anomaly Detection TechniquesDESCRIPTIVE
• Clustering-based Methods
Source: Baesens, B., Van Vlasselaer, V., & Verbeke, W. (2015). Fraud Analytics Using Descriptive, Predictive, and Social Network Techniques: A Guide to Data Science for FraudDetection. John Wiley & Sons, Inc.
Statistical Clustering Analysis Self-organizing Maps
Anomaly Detection TechniquesDESCRIPTIVE
• Social Network Analysis
Source: https://resources.zaloni.com/blog/mitigating-detecting-financial-fraud-with-social-network-analysis-and-graph-database
Anomaly Detection TechniquesPREDICTIVE
Predicting Fraud Cases
• Logistic Regression
• Decision Trees
• Support Vector Machines
• Neural Networks
Source: Baesens, B., Van Vlasselaer, V., & Verbeke, W. (2015). Fraud Analytics Using Descriptive, Predictive, and Social Network Techniques: A Guide to Data Science for FraudDetection. John Wiley & Sons, Inc.
Anomaly Detection TechniquesPREDICTIVE
Predicting Amount of Fraud
• Regression
Source: Baesens, B., Van Vlasselaer, V., & Verbeke, W. (2015). Fraud Analytics Using Descriptive, Predictive, and Social Network Techniques: A Guide to Data Science for FraudDetection. John Wiley & Sons, Inc.
Linear Regression Nonlinear Regression Principal Components Regression
MindMap: Fraud Management