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ASET - October 2010 7 (i)

E

Edwin

Member
Hi all,

ASET says that "if we wish to allow for correlations between the frequencies of the m operational risk categories then this will be achieved within step 2.
Click to expand...

Can someone please explain to me a little more how this can be done, I had thought to myself that there is no relatonship between Monte Carlo and correlation, unless you are speaking Cholesky and therefore assuming that the Multivariate frequency distributions are Multivariate normal, and if you do this then the marginals HAVE to be normal as well...

...then the preceeding point about simulating the frequency distribution from a poisson is wrongly placed.

My thinking is that the only correlation that could be being referred to here is paerson and hence the elliptical property surfaces. I really feel the examiners' could have been clearer and maybe ASET even more clearer. :(
 
Hi Edwin

you lost me at "Multivariate frequency distributions are Multivariate normal". Why do they have to be normal?
 
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