Statistics Flashcards
Can you explain the concept of standard deviation and its relevance in risk assessment?
Standard deviation measures the dispersion of data points from the mean. In risk assessment, it helps quantify the variability and potential volatility of returns or losses.
How would you use statistical methods to analyze a large dataset of insurance claims?
Statistical methods like mean, median, mode, and percentiles can summarize the data. Regression analysis, correlation, and hypothesis testing can uncover relationships and trends.
Define probability and describe how it is used in assessing risk.
Probability quantifies the likelihood of an event occurring. In risk assessment, it helps assign numerical values to potential outcomes, facilitating informed decisions.
What is the difference between a normal distribution and a Poisson distribution, and when might each be applicable in risk analysis?
Normal distribution assumes a bell-shaped curve and is useful for modeling various phenomena. Poisson distribution, with discrete events, is applicable when modeling rare, independent events.
How do you calculate key financial ratios, such as the debt-to-equity ratio or the return on investment?
Debt-to-equity ratio = Total debt / Shareholders’ equity. Return on investment (ROI) = (Net profit / Investment) * 100. These ratios evaluate financial health and profitability.
Explain the concept of yield to maturity and how it’s relevant in assessing investment risks.
Yield to Maturity (YTM) calculates the expected return on a bond held until maturity, incorporating factors like coupon payments and market price. It’s crucial in assessing bond investment risks.
Can you describe a situation where you’ve used regression analysis to model risk factors?
I’ve used regression to model risk factors like interest rate impacts on financial portfolios. It helps identify relationships between variables and make predictions.
What techniques or models would you use to quantify operational risk in a financial institution?
Models like the Loss Distribution Approach (LDA) can quantify operational risk by estimating the distribution of potential losses.
How do you perform stress testing and scenario analysis to assess the resilience of a portfolio or financial system?
Stress testing involves subjecting a portfolio to extreme scenarios to assess its resilience. For example, I’d analyze how a severe market crash affects a portfolio’s value.
Give an example of how you would model the impact of a severe economic downturn on an insurance portfolio.
To model the impact of an economic downturn on an insurance portfolio, I’d adjust variables like claim frequency and severity based on historical data and economic indicators.
