By looking at a case study in Monte Carlo and Loss Data, we are able to see how important it is to model loss experience and to categorise operational risk loss events.
Recently I had a discussion on modelling risk with a fantastic and successful business person who said to me : "I have read about Monte Carlo, you even make mention to it on your blog but it doesn't make great sense to me. The maths in Monte Carlo is even worse because it seems to confuse the concept by taking it into an academic place that most people aren't from.
Is it possible to explain Monte Carlo by using a tool we all understand such as Microsoft Excel?"
So be it, this blog posting is an Excel example of Monte Carlo and loss data. Due to the size of the post, it will be separated into two, possibly three updates.
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