Question: In risk modelling the central ingredients are simple correlations between pair of risks, empirical modelling and Monte Carlo simulations as the technical tools. Risk is

In risk modelling the central ingredients are simple correlations between pair of risks, empirical modelling and Monte Carlo simulations as the technical tools. Risk is in our setting defined as potential large losses, and our main interest is in the upper tail of the loss distributions. Sensitivity analysis and stress tests may easily be performed within the suggested framework by varying the parameters to the model.

Adapted: Dimakos, X

.

.

and Aas, K

. (2003),

Integrated Risk Modelling, Norwegian Computing Centre

3.1

In this context describe the term risk modelling and discuss ANY FIVE

(5)

benefits of risk modelling

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