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  • Exam Code: 500-101
  • Exam Name: Facebook Certified Ads Product Developer I
  • Version: V15.95
  • Q & A: 258 Questions and Answers

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Which of the following is the most important problem to solve for fitting a severity distribution for operational risk capital:
A. Determine plausible scenarios to fill the data gaps in the internal and external loss data
B. The risk functional's minimization should lead to a good estimate of the 0.999 quantile
C. The fit obtained should reduce the combination of the fitting and approximation errors to a minimum
D. Empirical loss data needs to be extended to the ranges below the reporting threshold and above large value losses
Answer: B
Ultimately, the objective of the operational risk severity estimation exercise is to calculate the 99.9th percentile loss over a one year horizon; and everything else we do with data, collecting loss information, modeling, curve fitting etc revolves around this objective. If we cannot estimate the 99.9th percentile loss accurately, then not much else matters. Therefore Choice 'a' is the correct answer.
Minimizing the combination of fitting and approximation errors is one of the things we do with a view to better estimating the operational loss distribution. Likewise, empirical loss data generally is range bound because corporations do not require employees to log losses less than an threshold, and high value losses are generally rare. This problem is addressed by extrapolating both large and small losses, something that impacts the performance of our model. Likewise, one of the objectives of scenario analysis is to fill data gaps by generating plausible scenarios. Yet while all these are real issues to address, the primary problem we are trying to solve is estimating the 0.999th quantile.

Refer to the exhibit.

Which queueing method has been configured?
D. priority queueing
Answer: E

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