Operational Risk

aggarwal.karan13
Posts: 1
Joined: Thu Jan 08, 2015 9:23 pm

Operational Risk

Postby aggarwal.karan13 » Thu Jan 08, 2015 9:24 pm

Sir , when we do copulas, we find out the joint probabilities of say loss frequency 1 and loss frequency 2, my doubt is what is the use of computing these probabilities, for Loss aggregation we have correlated frequencies and loss aggregation , so what is the need of calculating the joint probabilities ??

Is it to see how model is capturing dependance

or

Do we throw random numbers in the joint distribution and get joint frequencies from there

or

Do the distribution from where VaR will be based on same joint probabilities you are getting

Or any other reason.

Secondly sir in Min copula we say min (u,v) , by doing this do we get joint probabilities only ? and if yes once again what is use of that joint prob when we are directly getting loss frequencies by fitting u and v in appropriate distribution.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Operational Risk

Postby edupristine » Wed Feb 11, 2015 5:27 am

Copulas are modelled using joint probability distribution to capture the dependence of both variables simultaneously.
Moreover copulas are an alternative to correlation where an explicit dependence cannot be extracted using correlation coefficient.
Random number generation is typically used for joint prob modelling.
Var will also be based on the same joint distribution.


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