Should the loss component be based on gross or net loss?
I like this idea for the approach by the way. We use standardized at my firm, might pitch this approach to them. (We're a non-bank but follow Basel for Ops Risk Capital).
Not sure why I can't wrap my head around this, but when we calculate EL for a derivatives portfolio (compared to a loan portfolio) we're replacing EAD with EPE x alpha.
The justification for this is that EAD becomes stochastic and is dependent on a level of market variables.
Anyone work in this field or know anyone that does? Whats it like and what kind of background is good for this? I know it is still relatively new in some industries.
I have a bit different background than most. I'm working to get my CPA along with the FRM. I currently work in analytics for an...