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Frequency severity models

A

Alocin

Member
Hi
I am reviewing April 2013 exam and in going over the operational risk capital calculation question, found that I don't know as much as I should with regard frequency severity models.

I understood that I should model freq and severity but detailing the severity model and a possible distribution has got me stumped as well as combining the two models.

Where in the notes or elsewhere can I read up on this?

Thanks.
 
Hi, Unfortunately you cant. This is an example of the higher-skills questions that they throw into all SA exams. There is a little bit in Chapter 10 that discusses operational risk, but the answer to the question in April 2013 required either some practical experience (probably what the examiner had) or some reading around the topic. There will always be a few marks in every paper which are a bit like this, and you just have to make the best of what you know. There are a few comments in the solutions about modelling net of insurance, the use of assumed distributions of losses, using a Monte Carlo approach, and having a method of combining the losses with some sort of correlations - these were achievable with the knowledge in the SA5 course, but the other points were definitely higher skills.
 
Thanks. Has helped me to write what I know and not feel despondent on the things I don't.
 
If you had done ST9, the solution is familiar territory, however when doing the question I was not sure how technical I should be so I ddnt write about probability distributions or MC.

But retrospectively, a standard ST9 question and If I remember well it's been asked before in ST9 with a similar solution. See;- ST9 September 2010, question 7 part (I).
 
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