SOA Monograph- A New Approach to Managing Operational Risk - Ch.8


Reading Source:

Topics Covered in this Reading:

  • Goals of Measuring/Assessing Operational Risk
  • Actuarial Approach
  • Data Requirements
  • Frequency and Severity Distriubtions
  • How to Model Frequency
  • How to Model Severity
  • Combining Internal and External Loss Data
  • Risk Assessment, Scenario Analysis and Stress Testing
  • Calculating Value at Risk
  • Modeling the Operational Risk Component of Other Risks

SOA Monograph- A New Approach to Managing Operational Risk Ch. 8

Hi all,

I have a question about “Exhibit 8.7 – Risk Assessment Under Modern ORM”. Can you confirm me that in the table, the last column “1 in N years Output” is the result after the LEC was fitted to a normal distribution?




Good question. The notes indicate that they are fitting a log-normal distribution to the LEC. I can’t seem to reproduce the same percentiles with the given mu and sigma though. Was anyone else able to get the correct output results given the parameters indicated?


That’s correct. The output column is produced by the model. They don’t explain how to actually fit it, and it’s probably proprietary since there is a “patent pending.”