RISK ASSESSMENT/MEASUREMENT SYSTEM AND RISK-BASED DECISION ANALYSIS TOOL
First Claim
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1. A computer implemented system for estimating the risk of loss for a specified time period, the system comprising:
- an input module, operable manually to retrieve and/or receive input information relating to a plurality of observed and/or anticipated loss event occurrences, the input information providing a plurality of loss amount thresholds and the frequency of loss event occurrences at the plurality of loss amount thresholds;
an optimization module, operable to generate ALECs based on three or more parameters, the parameters comprising two or more severity parameters from an assumed loss severity distribution and an average loss frequency parameter for the specified time period, the optimization module;
(a) generating one or more initial value sets of the parameters, the initial value sets being provided as pre-determined values and/or provided randomly from a range and/or received manually, the range being pre-determined and/or received manually,(b) generating an ALEC for each of the value sets of the parameters,(c) calculating a weighted error test statistic to measure one or more differences at each loss amount threshold, and/or the aggregated differences, between each generated ALEC and the input information,(d) where one or more of the differences between any one or more of the ALECs and the input information show an improvement in the weighted error statistic greater than a predetermined rate or where steps (b) to (c) have been repeated less than a predetermined number of times, repeating steps (b) to (c) with new value sets of the parameters, the new value sets of the parameters being calculated to attempt to reduce the error test statistic for those ALECs,(e) determining, from the ALECs not being affected by step (d), the overall best fit ALEC based on the error test statistics calculated in step (c), and(f) where the differences between the overall best fit ALEC and the input information exceeds a predetermined precision requirement, and where steps (c) to (e) have been carried out less than a predetermined number of times, repeating steps (c) to (e) with a new weighted error test statistic, thereby providing an estimation ALEC;
wherein the estimation ALEC represents one unique combination of the average frequency of loss event occurrences for the specified time period and the parameters of the assumed loss severity distribution that best approximate the input information;
thereby, from the estimation ALEC, the risk of loss may be determined.
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Abstract
The present invention relates to a method and system for more accurately and reliably assessing/measuring risk, and is applicable to all areas of risk management including market, credit, operational and business/strategic risk. An additional aspect of the invention contemplates transforming the resulting risk metrics into risk-based economic capital and/or into decision variables, which can be used to make informed risk-based decisions.
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Citations
18 Claims
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1. A computer implemented system for estimating the risk of loss for a specified time period, the system comprising:
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an input module, operable manually to retrieve and/or receive input information relating to a plurality of observed and/or anticipated loss event occurrences, the input information providing a plurality of loss amount thresholds and the frequency of loss event occurrences at the plurality of loss amount thresholds; an optimization module, operable to generate ALECs based on three or more parameters, the parameters comprising two or more severity parameters from an assumed loss severity distribution and an average loss frequency parameter for the specified time period, the optimization module; (a) generating one or more initial value sets of the parameters, the initial value sets being provided as pre-determined values and/or provided randomly from a range and/or received manually, the range being pre-determined and/or received manually, (b) generating an ALEC for each of the value sets of the parameters, (c) calculating a weighted error test statistic to measure one or more differences at each loss amount threshold, and/or the aggregated differences, between each generated ALEC and the input information, (d) where one or more of the differences between any one or more of the ALECs and the input information show an improvement in the weighted error statistic greater than a predetermined rate or where steps (b) to (c) have been repeated less than a predetermined number of times, repeating steps (b) to (c) with new value sets of the parameters, the new value sets of the parameters being calculated to attempt to reduce the error test statistic for those ALECs, (e) determining, from the ALECs not being affected by step (d), the overall best fit ALEC based on the error test statistics calculated in step (c), and (f) where the differences between the overall best fit ALEC and the input information exceeds a predetermined precision requirement, and where steps (c) to (e) have been carried out less than a predetermined number of times, repeating steps (c) to (e) with a new weighted error test statistic, thereby providing an estimation ALEC; wherein the estimation ALEC represents one unique combination of the average frequency of loss event occurrences for the specified time period and the parameters of the assumed loss severity distribution that best approximate the input information; thereby, from the estimation ALEC, the risk of loss may be determined. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15)
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16. A computer implemented method for estimating the risk of loss for a specified time period, the method comprising the steps of:
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retrieving and/or receiving manually, input information relating to a plurality of observed and/or anticipated loss event occurrences, the input information providing a plurality of loss amount thresholds and the frequency of loss event occurrences at the plurality of loss amount thresholds; generating ALECs based on three or more parameters, the parameters comprising two or more severity parameters from an assumed loss severity distribution and an average loss frequency parameter for the specified time period, and optimizing the ALECs by; (a) generating one or more initial value sets of the parameters, the initial value sets being provided as pre-determined values and/or provided randomly from a range and/or received manually, the range being pre-determined and/or received manually, (b) generating a ALEC for each of the value sets of the parameters, (c) calculating a weighted error test statistic to measure one or more differences at each loss amount threshold, and/or the aggregated differences, between each generated ALEC and the input information, (d) where one or more of the differences between any one or more of the ALECs and the input information show an improvement in the weighted error statistic greater than a predetermined rate or where steps (b) to (c) have been repeated less than a predetermined number of times, repeating steps (b) to (c) with new value sets of the parameters, the new value sets of the parameters being calculated to attempt to reduce the error test statistic for those ALECs, (e) determining, from the ALECs not being affected by step (d), the overall best fit ALEC based on the error test statistics calculated in step (c), and (f) where the differences between the overall best fit ALEC and the input information exceeds a predetermined precision requirement, and where steps (c) to (e) have been carried out less than a predetermined number of times, repeating steps (c) to (e) with a new weighted error test statistic, thereby providing an estimation ALEC; wherein the estimation ALEC represents one unique combination of the average frequency of loss event occurrences for the specified time period and the parameters of the assumed loss severity distribution that best approximate the input information; thereby, from the estimation ALEC, the risk of loss may be determined.
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17. A machine-readable medium having stored thereon data representing sets of instructions which, when executed by a machine, cause the machine to perform operations for estimating the risk of loss for a specified time period, the operations comprising:
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retrieving and/or receiving manually, input information relating to a plurality of observed and/or anticipated loss event occurrences, the input information providing a plurality of loss amount thresholds and the frequency of loss event occurrences at the plurality of loss amount thresholds; generating ALECs based on three or more parameters, the parameters comprising two or more severity parameters from an assumed loss severity distribution and an average loss frequency parameter for the specified time period, and optimizing the ALECs by; (a) generating one or more initial value sets of the parameters, the initial value sets being provided as pre-determined values and/or provided randomly from a range and/or received manually, the range being pre-determined and/or received manually, (b) generating an ALEC for each of the value sets of the parameters, (c) calculating a weighted error test statistic to measure one or more differences at each loss amount threshold, and/or the aggregated differences, between each generated ALEC and the input information, (d) where one or more of the differences between any one or more of the ALECs and the input information show an improvement in the weighted error statistic greater than a predetermined rate or where steps (b) to (c) have been repeated less than a predetermined number of times, repeating steps (b) to (c) with new value sets of the parameters, the new value sets of the parameters being calculated to attempt to reduce the error test statistic for those ALECs, (e) determining, from the ALECs not being affected by step (d), the overall best fit ALEC based on the error test statistics calculated in step (c), and (f) where the differences between the overall best fit ALEC and the input information exceeds a predetermined precision requirement, and where steps (c) to (e) have been carried out less than a predetermined number of times, repeating steps (c) to (e) with a new weighted error test statistic, thereby providing an estimation ALEC; wherein the estimation ALEC represents one unique combination of the average frequency of loss event occurrences for the specified time period and the parameters of the assumed loss severity distribution that best approximate the input information; thereby, from the estimation ALEC, the risk of loss may be determined.
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18. A computer implemented method for estimating the risk of loss for a specified time period, the method comprising the steps of:
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retrieving and/or receiving manually, input information relating to a plurality of observed and/or anticipated loss event occurrences, the input information providing a plurality of loss amount thresholds and the frequency of loss event occurrences at the plurality of loss amount thresholds; generating one or more ALECs based on three or more parameters, the parameters comprising two or more severity parameters from an assumed loss severity distribution and an average loss frequency parameter for specified time period; and optimizing the ALECs by choosing an estimation ALEC from the one or more ALECs, wherein the estimation ALEC represents one unique combination of the average frequency of loss event occurrences for the specified time period and the parameters of the assumed loss severity distribution that best approximate the input information; wherein the risk of loss is determined from the estimation ALEC.
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Specification