Influence of Financial Innovation to the Validation of Operational Risk

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