If an insurer sets a premium based on the average probability of a loss in an entire population, those at higher-than-average risk for a certain hazard will beneﬁt most from coverage, and hence will be the most likely to purchase insurance for that hazard
Basic concepts of insurance
From losses and claims to the law of large numbers, you’ll find everything you need to know about insurance in this basic guide
Precautionary principles state that when there are threats to the environment, scientiﬁc uncertainty should not prevent prudent actions to prevent potentially large damage
Correlated risks from natural disasters
Default risk is the probability of default and helps potential lenders determine whether they should issue loans
Scenario simulation methods
In ﬁnancial risk management, two types of risk measurements are commonly used
Science of uncertainty
The public is increasingly alarmed over effects stemming from toxicants and industrial waste
Credit value at risk
According to Jorion, banks allocate roughly 60 percent of their regulatory capital to credit risks, 15 percent to market risks, and 25 percent to operational risks
Alternative asset categories have become popular with investors since the 2000–2001 recession
Basel II to Solvency II
Without a sound risk allocation system, risk-related decisions are likely to be suboptimal and lead to higher volatility, following unanticipated negative events, and less investment.
Securitisation is the isolation of a pool of assets and the repackaging of those assets for trading in capital markets. Securitisation began in the 1970s with US banks selling off pools of mortgage-backed loans
Dynamic Financial Analysis
Dynamic ﬁnancial analysis (DFA) is an application of mathematical modelling to businesses. DFA models the key elements that impact an organisation’s operations and simulates thousands of potential situations, determining the firm’s ﬁnancial condition for each outcome.
Reliance on models to price, trade, and manage risks carries risk. Models are susceptible to errors
Enterprise Risk Management
Enterprise risk management (ERM) is a recent technique, practiced increasingly by large corporations in industries throughout the world.
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