Towards Formal Ontologies for Technology Risk Measurement in the Banking Industry

Formal ontologies are well suited for embodying different types of domain knowledge and they provide reasoning capabilities to various applications. Our paper proposes a basic approach for applying ontologies to risk measurement in today's banking industry. This industry is constantly driven by international capital regulation like the new Basel Capital Accord (Basel II) which requires substantial management and understanding of operational risk. Therefore, we elaborate on an ontology-based application which can be employed for the formalization of operational risk and used for subsequent measurement. Hereby, we focus on technology-dependent risk which is a subcategory of operational risk. The paper proposes a formal representation in Description Logic based on the Web Ontology Language (OWL). Further, we discuss the application of the Unified Modeling Language (UML) as graphical notation for visualizing the domain knowledge. The overall architecture embraces a simulation environment which measures technology risk in proprietary trading. Finally, we discuss practical considerations and demonstrate the benefits of this approach