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The problem is not the sum $L + L_1$ but the question whether your $L_1$ is really a good model for whatever you might be missing in $L$. I personally (and maybe also some regulators) would regard losses always equal to 10K and completely independent from everything else not to be a good model for the low frequency high severity events typically missing from ...


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Taken from my experience as a trader I would suggest there are two parameters that comprise OperationalRisk: 1) A distribution of the size of losses due to the event, 2) A distribution of the frequency of events. I suspect a Poission distribution is fine to use to predict the frequency. Empirically this would tally with my experience. Secondly, with regard ...


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Not a complete answer put perhaps partial help. What alternatives do we have for pillar 2? Hard to say. There doesn't seem to be any specific alternatives, apart adjusting your old procedures to whatever the institutions you are working with require. 2: Does it have to be a loss distribution approach (LDA) or could it be something between LDA and a ...


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