Optimal capital allocation dividend strategy and operational risk of commercial banks

With the gradual accumulation of practice and theory of risk management in commercial banks, operational risk has received more and more attention, and has become the fourth major risk sources with credit risk, market risk and liquidity risk. But the theoretical research in this field is still relatively scarce. Under the framework of Jarrow, this paper does a theoretical research into operational risk of commercial banks, one step further. The stochastic model for the asset process and operation risk of the bank is set up firstly; and the optimal asset allocation and dividend strategy for the bank is derived by means of the stochastic optimal dynamic method then; at last, the relationship between the optimal strategies and the expected return and volatility of the risky asset and the severity and intensity of the operational risk. This paper contributes to the theoretical framework of operational risk, and puts forward suggestions for commercial banks under the operation risk for their production and business activities.