For a bank using the advanced measurement approach to measuring operational risk, which of the following brings the greatest 'model risk' to its…

The greatest model risk when calculating operational risk capital comes from incorrect assumptions

about correlations between different operational risks for which standalone risk calculations have

been made. Generally, the correlation can be expected to be positive, and would therefore vary

between 0 and 1. These two values determine the 'bounds' between which the total operational risk

capital would lie, and these bounds are generally quite far apart. Therefore the total value of the

operational risk capital is very sensitive to the value chosen for the correlation, and this is the source

of the biggest model risk under the AMA.