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


#1

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Online Link to this Reading: N/A

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

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SOA Monograph- A New Approach to Managing Operational Risk Ch. 8
#2

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?

Thanks,

Tinou


#3

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?


#4

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.”