Expected loss is the mathematical expectation of credit risk loss distribution, the average value of bank credit loss in a period of time, and the loss that banks can estimate in advance. Unexpected loss is the part where the credit risk loss exceeds the expected level and needs capital to make up.
Overall (the observation point has not breached the contract):
Expected loss (EL)= default probability (PD)* default loss (LGD)* default risk exposure (EAD).
However, according to the requirements of the New Capital Accord, banks should adopt other methods to determine the optimal estimate of expected losses for debts that have already defaulted.
Risk management var value includes expected loss and unexpected loss:
Any internal measurement system of operational risk must provide operational risk classification data consistent with the scope of operational risk and the type of loss events specified by the regulatory authorities. The regulatory authorities require commercial banks to obtain regulatory capital requirements by adding expected losses to unexpected loss (or including expected losses when calculating unexpected loss).
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FRM test questions trend
1, the number of qualitative questions in FRM Level 1 exam has increased: Although there have been many calculation questions in FRM Level 1 exam over the years, the number of qualitative questions in FRM Level 1 exam has been increasing in recent years. Moreover, many of the qualitative questions in the first level are related to the second level, which means that the qualitative questions in the first-level exam are simplified versions of the second level, which is equivalent to the second-level leadership.
2. The test sites of 2.FRM test calculation questions are conventional: CAPM, binary tree American option pricing, GARCH model, swap pricing, single factor model, regression equation, etc. These questions are tested almost every year. Therefore, we think that the more difficult calculation questions are actually our own grading questions, so it is suggested that candidates must practice reviewing the contents of regular exams.
3.FRM secondary main test sites: FRM secondary main framework includes three risks of Basel Accord, risk measurement methods, advantages and disadvantages of these measurement methods and optimization methods, risk hedging tools and their advantages and disadvantages, ERM/RAF requirements, some shortcomings, how to manage and so on.
4. Because there is no full-time questioner in GARP, all FRM questions are completed by selected global FRM holders, so the focus, difficulty and questions of FRM exams change greatly every year. Moreover, the FRM test requires higher comprehensive ability, with many knowledge points in the first level and many questions in the same knowledge point in the second level.