medium · Frm Part 2 Operational Risk
An operational risk manager is calculating the 99.9% annual aggregate loss quantile using the Standardized Measurement Approach (SMA).
Which structural element of the SMA serves as a risk-sensitive 'memory' of past large losses?
- The tail index ξ from the GPD fit of the previous year's losses.
- The Expected Loss (EL) deduction, which accounts for high-frequency/low-severity events.
- The Advanced Measurement Approach (AMA) capital charge, which is added to the SMA.
- The Internal Loss Multiplier (ILM), which is a function of the Loss Component and the Business Indicator Component.
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