8008 Exam Dumps | The generalized Pareto distribution, when used in the context of operational risk, is used to model:

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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition
PRMIA.8008.v2021-08-28.q125
Question 28

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Question 28/125

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

Correct 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.

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