
Ultimate access to all questions.
In the context of operational risk management within a banking institution, estimating the loss severity distribution is crucial for assessing potential financial impacts due to operational risk events. However, operational risk analysts frequently encounter the challenge of limited historical loss data, which complicates accurate estimation. Given this scenario, what is the most effective methodology that an operational risk analyst can employ to estimate a bank's loss severity distribution despite the constraint of having insufficient historical operational risk loss data?
A
Generate additional data using Monte Carlo simulation and merge it with the bank's internal historical data.
B
Estimate the parameters of a Poisson distribution to model the loss severity of operational losses.
C
Estimate relevant probabilities using loss information that is published by credit rating agencies.
D
Merge external data from other banks with the bank's internal data after making appropriate scale adjustments.