Risk Management & Insurance
Introduction into Risk Management, Risk Identification, and Risk Valuation Risk Management methods Selected topics
Introduction into Risk Management, Risk Identification, and Risk Valuation Risk Management methods Selected topics
Kartei Details
| Karten | 71 |
|---|---|
| Sprache | English |
| Kategorie | Finanzen |
| Stufe | Universität |
| Erstellt / Aktualisiert | 06.05.2014 / 20.05.2015 |
| Lizenzierung | Namensnennung (CC BY) (Dr. Caroline Siegel, Prof. Dr. Alexander Braun) |
| Weblink |
https://card2brain.ch/box/risk_management_insurance
|
| Einbinden |
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1.1) Introduction - Certainty, Uncertainty, and Risk
Define:
- Certainty
- Uncertainty in a wider sense
- Uncertainty in a narrower sense
- Risk
- Certainty: you know for SURE what future outcome will occur
- Uncertainty in a wider sense: at least TWO possible states of which only one can occur are expected
- Uncertainty in a narrower sense: not possible to forecast occurrence PROBABILITY for a certain state
- Risk: One CAN allocate (objective or subjective) occurrence probabilities to all possible states
1.2) Introduction - Risk Classifications
What are the four risk classifications? Explain them and give examples.
- Speculative Risks: with positive probabilities for loss AND gain (gambling etc.)
- Pure Risks: only a chance of loss OR no loss (e.g. owner of a house might lose it due to an earthquake) -> only pure risk are really insurable
- Dynamic Risks: Speculative risks resulting from changes in the ECONOMY (e.g. change in price level, consumer tastes, technology...)
- Statis Risks: Risk occuring even WITHOUT economic change. Tends to occur with a regularity over time (e.g. natural catastrophes) -> more insurable than dynamic risks
1.3) Introduction - Concept and Function of Risk Management
What is the goal of Risk Management?
Minimization of loss frequency and/or the magnitude of the losses that occur
1.3) Introduction - Concept and Function of Risk Management
What is the concept of Risk Management?
Scientific approach that deals with PURE RISKS to develop procedures for:
- Identification
- Measurement
- Valuation and Treatment
of risks
1.3) Introduction - Concept and Function of Risk Management
What are the four business functions of risk management?
- Develop and exploit exposure checklists and risk questionnaires
- Implement risk models
- Implement measures for risk cntrol (risk avoidance tools and risk reduction)
- Develop or apply risk financing tools (e.g. hedging with derivatives or contingent capital, insurance...)
1.3) Introduction - Concept and Function of Risk Management
What were the three main problems with the first forms of insurance? (e.g. caravans)
- Ex-post premia (after occurence; not all mebers were liquid)
- Adverse Selection (asymmetric information; before signing of contract: maybe price for premium set too low because of lack of information about the insured individual)
- Moral hazard (asymmetric information; after signing of contract: insured individual might take on higher risk)
1.3) Introduction - Concept and Function of Risk Management
Bayers Theorem (applied to goat problem)
A: Car is NOT behind first choice (P=0,5)
B: Showmaster opens particular gate (P=2/3)
(0.5*2/3)/0.5= 2/3
1.3) Introduction - Concept and Function of Risk Management
The St.Petersburg Paradox and how Bernoulli solves it
- Risk measurement is not sufficient: individual risk preferences play a role in decision making processes
- Game of chance for 1 player: coin toss as long as head appears, game stops when tail appears
- Amount of money for head is doubled each round
-> Paradox: expected value of game would go to infinity but people wouldn't be willing to pay a high price to enter such a game!
