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The correct answer is D

The question describes process approaches, as opposed to actuarial approaches, to developing bottom-up models for operational risk analysis. Empirical loss distributions examine historical loss data rather than focusing on processes, while extreme value theory focuses on analyzing the tails of a distribution that contain low-frequency, high-severity events. Causal networks, by contrast, dissect a process into sequential steps that can be examined individually. Also a process approach, fishbone analysis is a type of connectivity model that determines the different causes of losses or errors in each step of the process.

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3、“Convolution” means:

A) projecting frequency and severity probability distributions into independent losses over a time period.
 
B) analyzing frequency and severity loss data with regression analysis techniques.
 
C) reducing loss frequency and severity through a coordinated risk-management program.
 
D) combining frequency and severity probability distributions into independent losses over a time period.

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3、In the context of measuring operational risk, operating leverage models:

A) relate changes in normalized expenses to macroeconomic risk variables through regression analysis. 
 
B) measure the change in the relationship between variable costs and total assets. 
 
C) speculate about a set of possible catastrophic events. 
 
D) are relatively subjective.

nayizhenfeng

 The correct answer is B

 

Operating leverage models measure the risk that variable operating costs will increase by more than their historical relation to asset growth would suggest. Although they are a class of expense-based models in some sense, they do not relate expenses to macroeconomic factors. They are relatively objective (not subjective) and do not capture reputational considerations or the opportunity costs. Scenario analysis speculates about a set of possible catastrophic events.

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4、Which of the top-down approaches of measuring operational risk focus on LFHS?

A) Risk Profiling Models.
 
B) Scenario Analysis.
 
C) Operating Leverage Models.
 
D) Multifactor Models.

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 The correct answer is B

Scenario Analysis is unique among top-down approaches focusing on LFHS events that have not occurred yet.

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The correct answer is D

The risks that will have the most impact on the capital charge for operational risk are the low-frequency, high-severity risks.

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AIM 2: List and describe examples of top-down models for measuring operational risk.

 

1、Residual variance is an estimate of operational risk in which of the following models?

A) Connectivity models.
 
B) Multi-factor models.
 
C) Scenario analysis. 
 
D) Reliability models.

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 The correct answer is B

Residual variance is the proportion of variation in the dependent variable of a regression that is left unexplained by the independent variables. A multi-factor model is a top-down approach to measuring operational risk that uses macroeconomic factors to explain a firm’s stock returns. What is left unexplained by the model is considered aggregate operational risk. Scenario analysis is a top-down approach that does not use regression analysis. Reliability and connectivity models are bottom-up approaches.

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2、Which of the following models does NOT use regression analysis to measure operational risk by relating a financial variable to macroeconomic variables?

A) Multi-factor models. 
 
B) Income-based models. 
 
C) Expense-based models.
 
D) Risk-profiling models.