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PRMIA Exam 8010 Topic 1 Question 15 Discussion

Actual exam question for PRMIA's Operational Risk Manager (ORM) Exam exam
Question #: 15
Topic #: 1
[All Operational Risk Manager (ORM) Exam Questions]

Random recovery rates in respect of credit risk can be modeled using:

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Suggested Answer: A

The beta distribution is commonly used to model recovery rates. It is a distribution for variables whose values lie between 0 & 1, and the parameters of the distribution can be estimated using the mean and standard deviation of the data. Therefore Choice 'a' is correct and the others are wrong.

Refer to the tutorial on distributions for an Excel model of the beta distribution.


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