文档介绍：Chapter 10: Principles of Risk Management
Objective
Risk and Financial Decision Making
Conceptual Framework for Risk
Management
Efficient Allocation of
Risk-Bearing
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Contents
What is Risk?
Risk and Economic Decisions
The Risk-Management Process
The Three Dimensions of Risk Transfer
Risk Transfer and Economic Efficiency
Institutions for Risk Management
Portfolio Theory: Quantitative Analysis for Optimal Risk Management
Probability Distributions of Returns
Standard Deviation as a Measure of Risk
Risk management:
Qualitative
Risk management:
Quantitative
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What is Risk?
Uncertainty
An unrealized event is uncertain for an observer at a given time if he/she does not know its e at that time
I enter a sealed bid on a public contract
The value of my bid is certain to me
Before unsealing, my bid is uncertain to you
After unsealing, my bid is known to you
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What is Risk? Uncertainty that matters
Risk is uncertainty that “matters”, because it affects people’s welfare. Uncertainty is a necessary but not sufficient condition for risk.
.: You manage “The Intergalactic Herrings” and have a choice between two contracts for the concert hall
1 Pay the hall owner $2 for each ticket sold
2 Pay a specified lump-sum for the hall that has a lower expected cost than (1)
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Contractual es
“Ticket sales” is the “risk that matters”
While each fan may be certain about attending or not attending, management is not fully informed, and is at risk because
if sales are in fact higher than N*, it pays more if it selected choice 1
if sales are in fact lower than N*, it pays more if it selected choice 2
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