Once the frequency and severity distributions for loss events have been determined, which of the...

Once the frequency distribution has been determined (for example, using the binomial, Poisson or the negative binomial distributions) and the severity distribution has also been determined (for example, using the lognormal, gamma or other functions), the loss distribution can be produced by a Monte Carlo simulation using successive drawings from each of these two distributions. It is assumed that the severity and frequency are independent of each other. The resulting distribution gives a distribution showing the losses for operational risk, from whichthere Op Risk VaR can be determined using the appropriate percentile.Therefore Choice 'b' is the correct answer.