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6、In the LDA process, the frequency process describes:

A) the number of losses that occur.
 
B) the distribution of the operational loss.
 
C) the size of the operational loss.
 
D) the term of the operational loss.

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The correct answer is A

The frequency describes the number of loss events that occur over a specific time interval.

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7、As a result of the Basel standards every bank must now, calculate explicit capital charges to cover operational risk by one of three approaches: the basic indicator approach (BIA), the standardized approach (SA), and the advanced measurement approach (AMA). Which of the following statements are TRUE with respect to the operational risk approaches?

In practice the AMA approach is the most flexible approach for operational risk.
The most popular method to satisfy the AMA standards is the loss distribution approach (LDA).
The AMA method allows a bank to build its own operational risk model and measurement system, comparable to market risk standards.
BIA is widely used in insurance and actuarial science.
A) I, II, and III only.
 
B) I, II, and IV only.
 
C) II and IV only.
 
D) None of these.

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The correct answer is A

LDA is widely used in insurance and actuarial science.

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8、Which of the following statements are TRUE regarding the loss distribution approach (LDA)?

It is the most popular way to satisfy the AMA standards.
It is commonly used by insurance companies.
It requires an estimate of the probability distribution function.
It cannot be used if the frequency process is Poisson.
A) None of these.
 
B) I and II only.
 
C) II and IV only.
 
D) I and III only.
 

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The correct answer is B

An estimate of the PDF is not needed. Poisson is a common frequency process.

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AIM 2: Define various forms of subexponential severity distributions.

 

1、The sub exponential distribution:

A) is modeled with lots of small losses.
 
B) has tails that decay faster than the exponential distribution.
 
C) is similar to the normal distribution.
 
D) is heavy tailed in nature.

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The correct answer is D

A key feature of the sub exponential distribution is that its tails decay more slowly than the exponential distribution. Hence, the correct answer is that they are heavy tailed in nature.

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2、Three of the most common sub exponential distributions are:

A) Lognormal, Weibull, and Pareto.
 
B) Normal, Weibull, and Gamma.
 
C) Normal, Weibull, and Poisson.
 
D) Lognormal, Weibull, and Poisson.

nayizhenfeng

The correct answer is A

As defined in the reading, the most common sub exponential distributions are Lognormal, Weibul, and Pareto.