You have been asked to assess a specific risk within Money Laundering in a bank. The bank has not had experience in estimating such a risk before. You know that another bank has had similar incidents, and has asked about their experiences. They have said that they lost 25 M DKK on a similar incident. The bank you work for has 3 times as high earnings as the bank you have shared experiences with. Question 1: How big will you assess the risk of this event is for your employer. Justify your model choice and your assumptions

You have worked a little further with the problem. Assume that you have come to the conclusion that there is a 90% probability that the loss in the bank, in the money laundering situation, does not exceed 70M DKK. Also assume afterwards that you have come to the conclusion that Powerlaw applies, and = 0.8

Question 2: What is the significance of Powerlaw applying to the distribution function in the tail. Explain in your own words or drawings

Question 3: What is the probability that the loss does not exceed 120 M DKK

Question 4: What is VaR with 95% confidence interval for the given risk