Day: September 14, 2010

@RISK Quick Tips: Event and Operational Risks

The following model is example of the many different types of applications @RISK can be used for. Receive dozens more models in the books Financial Models Using Simulation I & II.

In many circumstances one wishes to calculate the aggregate impact of many possible yes/no type events. For example, it is often important to answer questions such as "What is the loss amount that will not be exceeded in 95% of cases?" Simulation is usually required to answer such questions. In this model, the "yes/no" events are modeled using Binomial distributions. The results profile shows a multi-peaked distribution, which is typical when there are discrete-type inputs. It can be seen that a provision level of around $700,000 is necessary to cover 95% of the cases.

» Download the model: EventandOperationalRisks.xls