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Argosy University/ Phoniex University/
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Phoniex University
Oct-2001 - Nov-2016
20.14 The worksheet used to produce Figure 20.2 is on the author’s website. How does the loss distribution change when the loss severity has a beta distribution with upper bound of five, lower bound of zero, and the other parameters both one?
1 Net interest income is the excess of income earned on loans over interest paid on deposits and other instruments that are used to fund the loans (see Section 2.2).
2 See Basel Committee on Bank Supervision, “Sound Practices for the Management and Supervision of Operational Risk,” Bank for International Settlements, July 2002.
3 If the mean frequency is greater than the variance of the frequency, a binomial distribution may be more appropriate. If the mean frequency is less than the variance, a negative binomial distribution (mixed Poisson distribution) may be more appropriate.
4 Combining the loss severity and loss frequency distribution is a very common problem in insurance. Apart from Monte Carlo simulation, two approaches that are used are Panjer’s algorithm and fast
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