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Empirical Loss Distributions The objective of the actuarial approach is to provide an estimate of the loss distribution associated with operational risk. The simplest way to accomplish that task is to collect data on losses and arrange the data in a histogram like the one illustrated in Exhibit 8A.2. Since individual nancial institutions have data on high-frequency, lowseverity losses (e.g., interest lost as a result of delayed settlements) but do not have many observations of their own on the low-frequency, highseverity losses (e.g., losses due to rogue traders), the histogram will likely be constructed using both internal data and (properly scaled) external data. In this process, individual institutions could bene t by pooling their individual observations to increase the size of the data set. Several industry initiatives are under way to facilitate such a data pooling exercise the Multinational Operational Risk Exchange (MORE) project of the Global Association of Risk Professionals (GARP) managed by NetRisk, a project at PricewaterhouseCoopers, and a BBA project. Explicit Distributions Parameterized Using Historical Data Even after making efforts to pool data, an empirical histogram will likely suffer from limited data points, especially in the tail of the distribution. A way of smoothing the histogram is to specify an explicit distributional form. However, a number of analysts have concluded that, rather than specifying a distributional form for the loss distribution itself, better results are obtained by specifying a distribution for the frequency of occurrence of losses and a different distribution for the severity of the losses.5 In the case of frequency, it appears that most analysts are using the Poisson distribution. In the case of severity, analysts are using a range of distributions, including a lognormal distribution and the Weibull distribution. Once the



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We also should note that premium rate numbers can be used for charging for Web-based services As we mentioned in the chapter on Retailing network technologies, Internet connections from private customers usually use the conventional local telephone network The telephone connection charges that are charged by Internet Service Providers are usually set as low as possible, in order to encourage users to access the service, but it is also possible to use higher rates as a way of collecting payment for added value services One typical example is in browsing on-line maps Customers access the Map-provider s home page using the normal low-cost.

The vo ltage delivered to the light fi xture at startup is 13% lower than the steady-state val ue,





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GETTING T&E UNDER CONTROL T&E reimbursements, especially when employees are paying credit card bills out of their own pocket, can be a very touchy issue in accounts payable. It is even more delicate if the manager is new, the process is unruly, and the new manager wants to impose some discipline on the process. The problem is summarized below, as is the advice offered by two seasoned AP professionals who have dealt with similar circumstances themselves. Problem: A very large distributor s AP department is in chaos. Deadlines and guidelines for employees to submit their T&E expenses were never established. Thus, accounts payable rarely has a reasonable amount of time to audit the expenses, input into SAP, and download into the bank for payment, after which AP has to deal with the invariable kick-outs that occur due to bad bank information for individuals. The problem for this AP department is exacerbated because the company does not have a corporate card, so employees are paying out of pocket, and sometimes their bills are high. Accounts payable wants to be sensitive to the cash-flow issue. However, more than occasionally,

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Since 0 = k/120 , the bandwidth becomes: kz 2 BW = 2 2 2 2 2 3 2 w hkz k y kz ( k x + k y )(1 + sinc kz ) 128 k 5 ( 1)2 sin 2 Inserting dimensional ratios:

queueing network with a population of K customers circling between the terminals and the processing system; note the special representation we use to signify infinite server nodes. One can think of closed queueing models as models in which a departing customer at one station will result immediately stations through in the arrival of that customer at one of the other queueing 10 in the model. We will discuss queueing network 13. models at length in

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