Statistics Risk Assessment & Management 3

Question 1

A factory's equipment fails on average once every 500 operating hours. Using the Poisson model, what is the probability of exactly zero failures in 500 hours?

Accepted Answer

e⁻¹ ≈ 0.368

Answer

With λ = 1 failure per 500-hour interval, P(X=0) = e^(−1) ≈ 0.368 by the Poisson PMF.

Question 2

Tail dependence in copula models refers to:

Accepted Answer

The tendency of joint extreme losses to occur together

Answer

Tail dependence captures whether extreme negative events in multiple variables co-occur more than a Gaussian copula would predict.

Question 3

Which risk response strategy involves shifting the financial consequences of a risk to a third party?

Accepted Answer

Transfer

Answer

Risk transfer, such as purchasing insurance or using derivatives, moves the financial burden of potential losses to another party.

Question 4

The coefficient of variation (CV) is used in risk analysis to:

Accepted Answer

Compare relative risk across variables with different means

Answer

CV = standard deviation / mean, allowing apples-to-apples risk comparison across projects or assets with different expected values.

Question 5

In credit risk modeling, Probability of Default (PD) combined with Loss Given Default (LGD) and Exposure at Default (EAD) yields:

Accepted Answer

Expected Loss (EL)

Answer

Expected Loss = PD × LGD × EAD, the standard formula for the average anticipated credit loss over a period.

Statistics Practice Test

Statistics Practice Test

Statistics Risk Assessment & Management 3