The generalized Pareto distribution, when used in the context of operational risk, is used to model:

The generalized Pareto distribution, when used in the context of operational risk, is used to model:
A . Tail events
B . Average losses
C . Unexpected losses
D . Expected losses

View Answer

Answer: A

Explanation:

Some risk experts have suggested the use of extreme value theory to model tail risk or extreme events for operational risk. The generalized Pareto model or the Peaks-over-Threshold (POT) model are often used to model extreme value distributions, and therefore Choice ‘a’ is the correct answer.