Risk Management
Task Force

Extreme Value Models (EVM) Minutes

 

Extreme Value Models (EVM) Conference Call
June 29, 2005
2PM Central Time

Participants
Bob Guth (Leader), Tom Edwalds, Jonathan Wang, Max Rudolph, and Scott Orr

Secretary for call: Bob Guth

Web liaison: Kevin Strobel

The minutes from the May 24 call have been posted to the SOA web site.

There was no new information to report from the Risk Management Section. There was also nothing reported about the web site.

Jonathan Wang (Northern Trust) provided a presentation, "A Practical Discussion of EVT-Based Modeling of Operational Risk." Jonathan went over the presentation. It is also available in
Powerpoint, (right click the link and click "Save Target As..." to download file) and we plan to post it on the web site for our Research Committee.

Key comments by Jonathan include: Basel II is described on pages 5 and 6. Initially only 10 to 20 U.S. banks are using Basel II, and the remaining 8,000 banks will migrate to Basel II later. Banks are creating their own internally generated risk estimates. The Loss Distribution Approach is on page 9 (frequency distribution x severity distribution ->a simulated loss distribution). The Northern's LDA-EVT Model (v.1.0) is shown as an overview on page 14.

In discussion afterward, we wondered how to choose an appropriate copula. We wanted to discuss copulas and regime-switching models at a future session. (See page 21 of the talk.) Another question was changes in the data as the exposure base changes over time.

We suggested the following questions for the list group:

  1. How do you use EVT in practice?
  2. What are operational risks that you consider?

The next call is scheduled for August 22 at 9AM Central Time.

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