Records of operational losses, internal or external, used to understand the frequency and severity of events. Data below a reporting threshold are usually missing.
Where you will meet it
Loss data comes up in 12 learning outcome notes across the FRM syllabus.
A few of them:
Operational Risk FRM Part I · Valuation and risk models
“The advanced measurement approach lets a bank use its own model, built on internal and external loss data, scenario analysis and control factors, to estimate a 99.9% one-year loss, subject to supervisory approval.”
Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector FRM Part II · Current issues in financial markets
“Capital absorbs financial losses but does not restore a stopped service, and loss data are scarce so calibration is weak.”
Introduction to Operational Risk and Resilience FRM Part II · Operational risk and resilience
“Its parts are governance with a three-lines-of-defence structure, a board-approved risk appetite, risk and control self-assessments, loss data collection, key risk indicators, scenario analysis, reporting and, where required, capital.”
Operational Risk FRM Part I · Valuation and risk models
“Frequency and severity estimates are only as good as the loss data behind them, and operational loss data have well-known problems.”
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