Risk profiling models relate performance indicators to control indicators to identify operational weaknesses. As such, they are not in the class of top-down approaches that relate macroeconomic factors to financial variables. For example, multi-factor models regress stock returns against macroeconomic factors. The residual variance from this regression measures the unexplained variance that is attributable to operational risk. Income-based models and expenses-based models are similar in that they relate measures of income or expenses to macroeconomic factors. |
