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Influence of financial innovation to the validation of operational risk

Dionisis Th. Philippas (Department of Business Administration, University of Patras, Rio, Greece)
Costas Siriopoulos (Department of Business Administration, University of Patras, Rio, Greece)

Managerial Finance

ISSN: 0307-4358

Article publication date: 25 September 2009

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Abstract

Purpose

The purpose of this paper is to show how the influence of the diffusion speed of a financial innovation (FI) increases the operational risk (OR) in any business line with different rate.

Design/methodology/approach

A stochastic model is considered presenting the influence of diffusion speed of FIs in order to validate the OR, without taking into consideration any external factors that create OR. Under specific hypotheses, the model presents the variance and the fluctuation of total OR in time and internal business lines of a financial institute because of the influence of an FI with a random degree of access (r).

Findings

FIs and OR and, their role in various financial organizations, are examined. The model suggests that an FI is more likely to occur and spread in production lines that have a great cross‐correlation with an increasing OR, without taking into consideration the external environment.

Originality/value

The originality of the paper is the stochastic relation between FIs and OR and the way that OR increases in any business line because of the influence of the diffusion speed of an FI.

Keywords

Citation

Philippas, D.T. and Siriopoulos, C. (2009), "Influence of financial innovation to the validation of operational risk", Managerial Finance, Vol. 35 No. 11, pp. 940-947. https://doi.org/10.1108/03074350910993827

Publisher

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Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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