Premium Growth for Operational Risk - Battle Quiz 6 - Calculation
The premium growth formula provided does not reconcile with the example on pg. 76. The one in the examiner's report for Fall 2017 20. c) however is more in-line with the paper (as expected).
Please correct the battle quiz algorithm/solution to accept the formula found within the paper.
Comments
The MCT paper doesn't specifically provide a formula so I invented my own. My formula is algebraically equivalent to what they did in the text and gives the same answer as can be seen as follows:
Then according to my formula, the growth charge
which rounds to 1.13 and agrees with the answer in p76.
The term (DWP+AWP)/(1+growth) is just the premium from the prior year, which in this case is given. That means you can rewrite the formula like this if you want:
To create a formula that exactly matches the example in the text, you could write:
However you do it, the risk factor has to be multiplied by the dollar amount of the premium growth that's in excess of 20%. I will add a link to this post in the wiki.
Thank you. I had mistakenly used the premium amount before growth when trying to reconcile the two methods.