Financial Risk Manager Part 1
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An operational risk manager is presenting to a group of risk analysts about different techniques to model operational risk. An analyst asks the manager about the appropriate use of the power law in estimating operational losses. Which of the following would be a correct statement for the manager to make about the use of the power law?
A
It implies that operational losses tend to follow a normal distribution.
B
It is more effective in modeling some types of operational risk, such as losses from fraud, than others, such as losses from natural disasters.
C
It is generally used to estimate routine operational losses which occur at a relatively high frequency.
D
It is suitable for modeling the tail of the operational loss distribution, but not for modeling the body of the distribution.