insights into mc+
The Monte Carlo Plus (mc+) system is a stand-alone Monte Carlo simulation tool.
It quantifies risk scenarios using a small number of user-defined inputs.
mc+ is based on a tried and tested approach using separate frequency and severity modelling where inputs come from individual risk scenarios.
The hypothetical but plausible risk scenarios are based on forward-looking estimates defined by the firm’s subject matter experts.
It requires just a few inputs – for each risk scenario the user gives a typical impact, an extreme impact and a frequency.
Correlations between the scenarios can be defined if required.
SEVERAL HUNDRED THOUSAND ITERATIONS AND A FEW SECONDS LATER THE RESULTS ARE AVAILABLE
– PRESENTED AS AN AUTOMATICALLY GENERATED
SUITE OF GRAPHICAL REPORTS.
MOST EXISTING SOFTWARE IS GENERALLY LIMITED – BY ITS OWN COMPLEXITY – BOTH IN APPROACH AND FUNCTIONALITY.
Furthermore, external loss data information is required to complement the relatively narrow and limited representation of the “true” risk profile. In theory, the firm needs to have 200 years’ worth of data in order to more accurately represent the risk profile.
Most existing approaches to calculation of capital requirements for operational risk rely on loss data analysis (LDA). The LDA methodology requires a large number of data sets that meet high quality standards (e.g. minimum number of data points and history).
mc+ is different – It is simpler.
THE mc+ APPROACH RECOGNISES THE DRAWBACKS
AND SIMPLY AVOIDS THE PROBLEMS OF THE LDA APPROACH;
it recognises that expert judgement of the structure of loss distributions that is informed by the data will be more reliable and more useful than the data itself; it puts you (or the experts on whom you rely) in the driver’s seat.
THE RESULT IS THE SAME RIGOUR WITH INSIGHT ADDED;
THAT MAKES FOR BETTER INFORMATION;
THAT HAS GREATER CREDIBILITY.
EXCEPTIONAL EASE OF IMPLEMENTATION
– DEPLOY & IMPLEMENT THE METHODOLOGY WITHIN DAYS RATHER THAN WEEKS OR MONTHS
SIMPLICITY AND TRANSPARENCY IN USE
- NO TECHNICAL JARGON
MODEL CALIBRATED TO FIRM'S EXISTING RISK INFORMATION - NO NEED TO REINVENT THE WHEEL
ENCOMPASSING ALL KEY RISKS
FULLY COMPLIANT WITH RISK CAPITAL CALCULATION REQUIREMENTS
ADDING VALUE IN TERMS OF CAPITAL EFFICIENCY
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Economic Capital Solutions Ltd
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London SE1 4LL