Risk Mgmt and Capital Requirements in Banking
Lecture 3.1 Vorlesung 19.02.2014
Lecture 3.1 Vorlesung 19.02.2014
Kartei Details
Karten | 31 |
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Sprache | Deutsch |
Kategorie | Finanzen |
Stufe | Universität |
Erstellt / Aktualisiert | 20.02.2014 / 24.04.2014 |
Lizenzierung | Keine Angabe |
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According to Donald Rumsfeld there are risks that are known knows, known unknown and unknown unknowns. What is the meaning of those phrases?
known knowns = risk we know and can measurable
known unknowns = risk we know, but not measurable
unknown unknowns = risk we don't know and therefore not measurable
According to Neumann - Morgenstern
1. Which shape has an utility function for risk aversion?
2. Which condition has to be exist regarding utility of expected value and expected utility?
1. concave
2. U(E((x)) > E(U(x))
According to Neumann - Morgenstern
1. Which shape has an utility function for risk neutrality?
2. Which condition has to be exist regarding utility of expected value and expected utility?
1. linear
2. E(U(x)) ? U(E(x))
Which are the 4 Axioms of Expected Utility according Neumann - Morgenstern?
1. Completeness
2. Transitivity
3. Continuity
4. Substitution
What does the Allais Paradox describes?
Decision1: Choose between (A) an 80% chance of $4000; (B) $3000 for sure.
Decision2: Choose between (C) a 20% chance of $4000; (D) a 25% chance of $3000.
Which axiom is violated?
unsufficient description of human behavior towards risk.
B over A; C over D --> result violates the substitution axiom (= common ration effect)
From decision1 to decision2 one goes from a certain to a uncertain situation. In this case certainty creates additional value.
What is the statement of the Asian Disease Example?
People act risk-aversely when dealing with gains/profits.
People are getting riskier by dealing with losses.
Market Risk
1. Potential of loss because of unexpected changes in market prices
2. generally symmetrical distribution
Example: Depreciation of USD leads to decline in the CHG value of USD assets.