Fast, Accurate, Straightforward Extreme Quantiles of Compound Loss Distributions

18 Jul 2017 Opdyke J. D.

We present an easily implemented, fast, and accurate method for approximating extreme quantiles of compound loss distributions (frequency+severity) as are commonly used in insurance and operational risk capital models. The Interpolated Single Loss Approximation (ISLA) of Opdyke (2014) is based on the widely used Single Loss Approximation (SLA) of Degen (2010) and maintains two important advantages over its competitors: first, ISLA correctly accounts for a discontinuity in SLA that otherwise can systematically and notably bias the quantile (capital) approximation under conditions of both finite and infinite mean... (read more)

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